Vesting in 403(b) plan

[Guest cjthornton]

My client has a 403(b) plan that uses the actual hours worked for purposes of vesting. An issue has come up regarding a salaried employee who is questioning his vesting calculation. He is claiming that he has already worked in excess of 1,000 hours this year because he routinely works over 40 hours a week. I have been unable to locate any guidance on calculating "actual hours worked" for salaried employees. Any help would be appreciated.

[mbozek]

Have you reviwed the plan document? A 403b plan subject to ERISA is subject to the DOL rules for crediting hours of service. See reg 2530.203-1 and -2 and 2530.200b-2.

[MWeddell]

There are several permissible equivalencies for when records of actual hours are unavailable. For example, one may assume that employees earn 45 hours of service per week. You'd have to read the plan document and regulations as the above post advised to see if the plan is using one of those equivalencies.

[Guest asire2002]

I think you would be within your discretion as administrator of the plan (assuming the document gives you discretion) to give credit only for 40 hours per week, even if the employee actually worked more than 40 hours per week. Under DOL rules, the actual hours method requires employees to receive credit for each hour they are paid for working, for each hour they are paid for not working such as sick days or vacation, and for each hour back pay is awarded. This of course is an oversimplification but I think sufficient for your purposes. What hours is a salaried employee paid for working? Is it their actual hours worked, or just the standard work week? In most businesses, it is for the standard work week, whether they work more or fewer hours.

[MWeddell]

I disagree with the above. A salaried employee is paid for an unspecified number of hours subject to a minimum such as 40 hours per week. The person is not acting as an unpaid volunteer.

Take a look at Labor Reg. 2530.200b-3©(1). Why would the regulations provide for equivalencies, including 45 hours per week, if one could merely limit hour of service credit to only 40 hours per week as suggested by the above post.

Even though I disagree, the issue is not very clear from the regulations. Consider checking with your legal counsel.

[Guest asire2002]

One problem many employers face, when using a prototype document that covers both salaried and hourly employees, is the need to credit hours of service under a single approved method, such as the "actual hours" method or one of the "equivalency" methods for both groups of employees. These employers often do not want to give hourly employees credit for time they don't work, such as would be required if an equivalency method is used. The above was one possible approach to resolving this dilemma and I am relatively comfortable with it. However, as with any "advice" posted on these boards, I agree that it is always a good idea to check with counsel.

[QDROphile]

Sorry, if you want a prototype, you have to make a choice and can't have it both ways. If you choose hours, then you have to find a way to record hours for those who do not otherwise report hours for payroll purposes. You can't "deem" a certain number of hours unless you use the equivalencies. Many use 2080 hours per year when they have elected the actual hours option and they are running the plan improperly.

[Guest asire2002]

I have discussed this issue with other attorneys in our field. It is a possible solution and one that I don't think is that far outside the box. It hinges upon an interpretation of the requirement, under the "actual hours" method, of what exactly are the hours for which a salaried employee is being paid or for which he or she is entitled to payment. The rules do not require credit for hours worked, they require credit for hours for which pay is received. If a salaried employee works less than 40 hours (or whatever the regularly-scheduled workweek is) he or she will generally get paid the same as when he or she works 50 hours per week, assuming the employee is exempt under the wage statute. If you disagree with the underlying interpretation, then you would not use this approach. But if you do, it would seem a perfectly reasonable means of addressing the restrictions of some prototype documents.

[QDROphile]

I find that very difficult to accept in the light of the detailed provisions for equivalencies in the regulations. If you can just peg any number of hours for which a person is paid, you can circumvent the equivalencies. I don't think you can interpret regulations in a way that make the regulations meaningless.

The regulations force a choice. For EACH participant, either count hours or use equivalencies. The decison to buy a protoype also forces a choice. For ALL particiapnts, choose either to count hours or to use equivalencies. Automatic use of 40 hours a week is not a choice, no matter what type of plan is used.