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Participant Eligibility

Participant eligibility can depend on restrictions in the Code and/or ERISA, and restrictions in the design of the plan.

In most cases, only employees are generally eligible to be included in the plan.  However, there are two possible exceptions: leased employees, and independent contractors.  In some plans, qualifying leased employees are required to be treated the same as common law employees, for certain plan purposes.  In other plans, they are not eligible to participate at all.  By contrast, independent contractors who are not employees of the sponsoring employer generally are excluded from plan eligibility, with one important exception.  That exception is a 457(b) plan, which can include both employees and independent contractors.

There is no restriction for non-ERISA plans, providing the plan sponsor greater flexibility to determine who is permitted to participate.  However, in the case of public plans, many of which are authorized under state statutes and regulations, those legal sources often will define who is eligible to participate in the plan.  Thus, for example, one state defined contribution plan may only be available to college and university employees, while another may be available to all public employees in the state.

Specific plan considerations:

  • 401(a)/401(k) plans: Qualifying leased employees must be included for certain purposes.  Independent contractors are not eligible to participate.
  • 403(b) plans: Neither leased employees nor independent contractors are eligible to participate.
  • 457(b) plans: Can be open to both common law employees and leased employees.