Employers Shorten 401(k) Waiting Periods

U.S. employers are shortening the time that new employees must wait before they are eligible to participate in 401(k) plans, according to a new survey.

The survey of 427 profit-sharing and 401(k) plans by the Profit Sharing/401(k) Council of America in Chicago found that 69 percent of plans allow employees to make contributions within three months of their hire date, up from 65 percent a year ago.

Among plans with at least 1,000 employees, 85 percent offer eligibility within three months, up from 79 percent a year earlier.

“Shorter eligibility periods are good news for workers,” PSCA president David Wray said in a statement.

Shorter eligibility periods mean, among other things, that employees will have a smaller gap between the time they stop contributing to a 401(k) plan when they leave one company and when they can start contributing to the plan of their new employer.

Reduced waiting periods for 401(k) plans also take on greater importance as more companies close their defined-benefit plans to new employees, making corporate 401(k) plans the only company-sponsored plan in which employees can save for their retirement.

—Jerry Geisel

Jerry Geisel is a reporter for Business Insurance, a sister publication of Workforce Management.