This article was sourced from plansponsor.com

The Department of Labor’s final rule on employee classification, finalized in January, could change which workers are eligible to join a retirement plan.

The rule requires employers to use six criteria, with equal weighting, when determining if a worker is an independent contractor or an employee:

• The worker’s opportunity for profit or loss
• Relative investment between employer and worker
• The degree of permanence of the relationship
• The worker’s level of control over pricing and hours, among other things
• How integral the work is to the employer’s business
• The level of skill and initiative required on the part of the worker

This framework makes it harder to classify workers as independent contractors and as a result can lead to more of them being classified as employees.

According to David Levine, a principal at Groom Law Group, independent contractors are eligible to join 457 plans but are not eligible to join 401(k)s or 403(b)s. There is an exception, however, for self-employed ministers, who may join 403(b) church plans.

Levine says that “plan sponsors should certainly evaluate how independent contractors may be treated under the new rules.” He added that “many plans have language about individuals who are not classified as employees not being eligible even if reclassified,” as a categorical exception.

Levine recommends plans conduct a review of “independent contractor process and plan language,” and consult with their plan counsel on which workers might become eligible.