From the Hotline: 401k Retirement Plans for Employees Receiving Social Security

Question: Can a part-time employee who recently started receiving Social Security benefits continue to participate in our 401k retirement plan if there is nothing in the plan document to prevent participation?

Answer: If the employee is still actively working and eligible to contribute under the terms of your Plan, then neither the employee’s age nor the fact that this employee is collecting Social Security benefits matters.

In fact, there is a frequently asked question relating to retirement plan contributions on the IRS site listed under 401(k) plans (http://www.irs.gov/Retirement-Plans/Retirement-Plan-FAQs-Regarding-Contributions—Am-I-required-to-make-contributions-for-my-employee-who-has-turned-70%C2%BD-and-is-receiving-RMDs%3F) that addresses this issue and says, “You must continue contributions for an employee, even if they are receiving required minimum distributions.  You must also give the employee the option to continue making salary deferrals, if the plan permits them. Otherwise, you will fail to follow the plan’s terms, causing your plan to lose its qualified status.”