News Notes: Revised 401(k) Rules Reduce Need For Waiting Periods

A little-noticed law that goes into effect on January 1, 1999, may enable companies to eliminate or reduce waiting periods for new hires who want to participate in 401(k) plans. Many employers are reluctant to immediately allow new employees to join 401(k) plans. The primary reason is that their typically lower contributions can pull down the averages in complicated IRS discrimination tests designed to make sure that highly paid workers aren’t disproportionately benefiting from an employer’s 401(k). But under the new rules, which are part of the Small Business Job Protection Act of 1996, only new hires who make $80,000 a year or more-and are therefore likely to make higher contributions-will count for purposes of the discrimination test.