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1,000 hour question


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In our 403b plan, we have a group of employees who normally do not receive retirement contributions, however, they are not specifically excluded from plan participation in the Plan document. If one of these employees exceeds 1,000 hours, does that mean that we need to make retroactive contributions for those employees or would we do that on a prospective basis. If retro contributons should be given, would they be given back to the beginning of the calendar year or the employee's anniversary date.

(FYI, we monitor this group's hours to ensure that they do not exceed the 1,000 hour cap, but sometimes it is necessary to retain one of these employees for longer than 1,000 hours.)

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I'm assuming here that this is a plan which is subject to the 1,000 hours standard in the first place (e.g., not a governmental plan. In that case, you need to treat these employees the way other employees are treated by the plan. If other employees do not begin to participate until they have achieved 1,000 hours and/or reached their anniversary date, then these employees would need to be included only prospectively and/or on their anniversary dates. But if other employees are admitted to the plan immediately, these employees should normally be admitted retroactively.

It may be possible to amend the plan to avoid this result. For example, if it is a particular category of worker that is likely to be in this situation, you could exclude that whole category of worker until they have reached 1,000 hours, subject to passing nondiscrmination tests. However, it is my understanding that the IRS examiners have in some instances disallowed a category which is too obviously related to temporary or part-time status, if that status does not preclude attainment of 1,000 hours.

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The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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