Does a Company Have to Offer a 401(k) to Every Worker?

Employers with 401(k) plans must follow eligibility rules on who can participate

For many workers, a well-run 401(k) plan with generous employer matching benefits is a powerful incentive to work for a particular company. While there is currently no legal obligation for companies to offer a 401(k) plan, if they do offer one, they must adhere to strict rules about which employees are eligible to participate.

In this article, we’ll look at those rules and how they may apply to you.

Key Takeaways

  • Employers have no legal obligation to offer a 401(k) plan for their workers, although many do.
  • When employers have a 401(k) plan, they must follow certain rules about which employees are eligible to participate.
  • Eligibility requirements can include the employee’s age and length of service with the employer.
  • Rules differ for full-time and part-time employees.

Do Employers Have to Offer a 401(k) Plan?

While many employers today offer a 401(k) plan to their employees, they are not required to by law. According to the U.S. Bureau of Labor Statistics, 67% of private industry workers had access to a 401(k) or other defined contribution retirement plan in 2020.

Employers that want to offer a 401(k) plan have more than one type to choose from. In addition to traditional 401(k)s, employees may be offered other types of 401(k) plans, such as those designed primarily for smaller businesses. For example, SIMPLE 401(k) plans are for small businesses with 100 or fewer employees. SIMPLE stands for Savings Incentive Match Plan for Employees.

Safe harbor 401(k) plans are another type of 401(k). They allow employers to avoid the nondiscrimination tests that traditional 401(k) plans must pass. (Nondiscrimination tests are designed to ensure that plans do not favor highly compensated employees over other workers.) Safe harbor plans are also easier for small businesses to administer.

Business owners without employees can contribute to one-participant or solo 401(k) plans. Eligibility for these plans is limited to the owner and their spouse, if the spouse also works for and receives pay from the business.

Finally, a more recent innovation has been the pooled employer plan (PEP), made possible by the Setting Every Community Up for Retirement Enhancement (SECURE) Act in 2019. These plans allow multiple small employers to jointly offer a 401(k) to their workers.


Some states have enacted laws requiring employers to either offer a retirement plan to their employees or participate in a state-sponsored plan, typically in the form of a Roth individual retirement account (Roth IRA). Other states have passed similar laws but not yet implemented them.

Basic 401(k) Eligibility Rules

Employers can make every employee immediately eligible to participate in their 401(k) plan. However, they don’t have to.

In general, the employer must allow employees to participate once they either turn age 21 or complete one year of service, whichever is later. For example, someone who joined the company at 18 may not be able to participate until they are 21. Or, a 25-year-old who joins the company could be required to wait a year before they can participate, if the company chooses.

Once an employee becomes eligible, they will be allowed to join the plan on either the first day of the next plan year or within six months from their date of eligibility, whichever comes first.

Note that those rules apply to full-time employees, not part-time or seasonal employees. To qualify as full time, they must meet one of two criteria. If the plan uses an “hours of service” requirement, that typically means the employee must work at least 1,000 hours in a 12-month period. If the plan uses an “elapsed time” requirement, eligibility is based on the length of time that the employee has worked for the employer, not a number of hours.

Part-time employees typically have been excluded from participating in a 401(k) plan, although those rules recently changed. As a result of the SECURE Act, as of 2021, employees who work at least 500 hours in each of three consecutive years will be eligible to participate in their employer’s 401(k) plan, assuming that they meet the plan’s age and other requirements. So, the first group of employees affected by this change will become eligible in 2024, unless their employers choose to implement it earlier.

Are employers required to make matching contributions to their 401(k) plan?

Employer matches are entirely optional with traditional 401(k) plans. With Savings Incentive Match Plan for Employees (SIMPLE) 401(k) plans, employers must make either matching or nonelective contributions (for employees who don’t make their own contributions). Similar rules apply to safe harbor 401(k) plans and those with an automatic enrollment feature.

How can you find out when you are eligible to participate in a 401(k) plan?

You can either ask your employer or request a copy of the summary plan description (SPD) for your plan. The SPD is the official document that describes how your plan works.

Do you have to participate in a 401(k) plan?

You do not have to participate in a 401(k) plan. However, if your plan has an automatic enrollment feature, your employer may enroll you automatically each year unless you opt out, which you have a right to do.

The Bottom Line

Employers often offer 401(k) plans to help attract and retain talented staff. However, there is no legal obligation for employers to have one, and many companies—particularly smaller ones—do not.

If a company does offer a 401(k) plan, it must follow certain rules regarding when employees become eligible to participate. These rules differ depending on whether the employee is full time or part time, as well as on the employer’s service requirements.

Article Sources
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  2. Internal Revenue Service. “Choosing a Retirement Plan: SIMPLE 401(k) Plan.”

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  6. American Academy of Actuaries. “Pooled Employer Plans—Employer Considerations.”

  7. ADP. “State-Mandated Retirement Plans.”

  8. Internal Revenue Service. “A Guide to Common Qualified Plan Requirements,” select “1. Minimum Participation Requirements.”

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  10. Cornell Law School, Legal Information Institute. “26 CFR § 1.410(a)-7 — Elapsed Time.

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  12. Internal Revenue Service. “Operating a 401(k) Plan.”

  13. Internal Revenue Service. “Retirement Topics — Automatic Enrollment.”

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