I have just changed employers, and my new company says you must wait a year before you can contribute to the 401K plan. I am not interested in any matching funds, and I could see the benefit of making sure the employee will stay before offering matching, but what is the benefit to making an employee wait?
digdowndeepnseattle
Favorite Answer
If an employee is eligible to contribute and doesn't then he counts as a zero in discrimination testing. Enough zeros and the average deferral percentage (ADP) of the non-highly compensated employees goes so low that the highly compensated group is not able to put much money into the plan. It's also statistically proven that most first year employees do not participate in the plans. The government recognizes this and the damage that it does to companies that have high turnover, they allow everyone to exclude employees from participating for up to a year. Many employers take advantage of this to 1) make sure their contributions are limited as little as possible and/or 2) minimize the headache and costs of enrolling people only to have them quit a short time later.
Ed Atun
There are costs involved with setting up the account. They must have 25% turnover of employees and they are tired of all the wasted money. It might be a condition of the brokerage that handles the accounts; that the fees are reduced if there is no turnover..
npk
Ask the employer. Likely, they just want to make sure you're a "long term" employee first.
countrylovin
it cost the co. $ to set up a plan for you. why waste the $ if you don't last? Get yourself a Roth IRA, they are way better.
Slimsmom
Here is a nice article that explains this:
http://www.newsday.com/topic/bal-accounts120103,0,1832438.story