Why is it important for plans to include eligible employees in 401(k) plans?

Including eligible employees in 401(k) plans is critical for ensuring legal compliance with the Employee Retirement Income Security Act (ERISA). ERISA sets standards for pension plans in the private industry, aiming to protect participants and beneficiaries. By including eligible employees, plans must adhere to various regulations regarding participation, nondiscrimination, and benefit accrual, thus minimizing the risk of legal issues and possible penalties.

Failing to include all eligible employees could lead to violations, risking the plan's tax-qualified status and exposing the employer to significant liabilities. Compliance with ERISA not only protects the plan's integrity but also promotes fairness and equitable treatment among employees, ensuring that those who qualify can participate in saving for their retirement. This underscores the importance of proper inclusion to maintain the plan's status and effectiveness.