Hours of Service

[Guest kjk]

Can anyone think of authority which would permit a plan to disregard hours of service earned while a per diem employee and only begin counting hours of service (towards the 1,000 hour requirements) of full time employees?

[mbozek]

I assume you are referring to eligibility for employer contributions since all emplyees who regularily work at least 20 hours a week must be given the right to make salary reduction contributions. An employer can always exclude employees from being eligible for employer contributions to a 403(B) plan by excluding them from the eligible class of employees.

[Guest kjk]

My question was purposefully vague, because the question I've been asked covers so many different plans and areas of those plans. The employer (it's a controlled group) in question has not only 403(B) plans but money purchase pension plans. Obviously, the counting of hours of service touches upon a variety of plan events, such as eligibility to participate and entitlement to share in allocations. Some of the members of the controlled group count all hours for everything and some of the members disregard hours earned while a per diem employee for everything. I've been asked how to coordinate the two approaches, but when I got to thinking about it, I wondered how they were excluding the hours for per diem employees in the first place. I didn't think you could exclude a class like that--are you saying there are different rules for 403(B) plans (I'm not very familiar with 403(B)s, to be honest). Thanks!

[mbozek]

You really need to review all of the applicable laws. First Q is this a private, church or public employer? Private employer plans are subject to ERISA rules that requires participation for employer contributions by members of the eligible class who perform 1000 hours of service in a year. An employer can define an eligible class in many ways such as location, type of work, hourly or salaried employees and can exclude union members from the plan. Public and church employer plans can define participation any way they desire because they are exempt from ERISA. All employers (including churchs and govts) are required to permit salary reducton by employees other than students or persons participating in another pre tax plan such as a 457 plan who are regularily scheduled to work 20 hours a week.

You must review the IRS regs under 1.410(a)-1 and IRC 403(B)(12) to determine the eligibility requirments.

Q2 the controlled group rules do not officially apply to tax exempt employers because cg rules require common owereship or stock or equity interests by the same person or related parties. There is one weird irs ruling that based aggregation of np employers on interlocking board membership between several np organizatins but the ruling had to do with issuing a single 5500 form for the controlled group.

Church and govt employers are exempt from CG rules.

You really need to retain counsel to explore all of the issues.

[Guest dani_o]

Mbozek,

A plan sponsor wants to change their eligibilty requirements in their 403(B) plan from immediate to 3 months of service. They also, however, want to create a class of "exempt" employees that don't have to meet this eligibility requirement (and would therefore be eligible the first of the month following or coincident with date of hire). Probably for contractors or HCEs. Sounds discriminatory. Do you have any cites that you know of that addresses such an issue?

[mbozek]

D: You really need to review the IRS rules for 403(B) plans. See IRS pub. 571 for details as well as the cites in my previous post.

1. independent contractors cannot particpate in a 403(B) plan. Only employees are eligible.

2. All 403(B) plans must permit immediate participation for salary reduction with no waiting period.

3. 403(B) plans of 501© (3) employers are subject to the same participation requirements which apply to qualified plans for employer contributions. IRC 410(B) forbids participation restrictions which favor HCEs. PLans for public school or church employees are exempt from this requirement.