counting service before plan for eligibility

[Earl]

Setting up a plan effective 1/1/02. No prior plan exists. Dr. with two employees. EE A works over 1,000 hrs/yr and is in the plan. EE B worked under 1,000 hrs in 2002 but worked over 1,000 some year in the past.

Do I have to let EE B into the plan (and give a contribution).

Also, that person would be non-excludible for the ADP test even though working only 1 day/week currently (and for past few years).

I understand that I can exclude service for vesting pre-2002 but can I exclude service pre-2001 for eligibility? (Count 2001 as elig. year so enter 1/1/02.)

(I am thinking my fact finding may not have been as good as it needs to be: "Did any employee currently working under 1,000 hrs ever work over 1,000 hrs in any past year?")

[Guest taj32z]

Earl

If you are setting the plan up effective 1/1/02 and crediting past service for eligibility then you would have to let the person that currently works part-time in if they have worked 1000 hours in a previous year.

[Earl]

thanks -

But do you think I must count years prior to 2001? Could I put in a provision to exclude service for eligibility prior to 1/1/01? I can't do it in my prototype, but can it be done in an individually designed plan?

[mbozek]

Establish the plan with an effective date of 1/1/02 so that only service on or after 1/1/02 will be counted for eligibility. Thus ee A will be participant for 2002. But once employee B completes 1000 hrs then B will be eligible to participate in the plan.

[Earl]

So what I think you are saying is that I would exclude service pre-2002 for eligibility (and vesting, potentially).

So eligibility for 2002 would be complete 12 months and 1,000 hrs and enter on the 12/31 following (12/31/02), because if I use a period less than 12 months I lose the hrs flexibility and EE B will enter also. Although I guess that is becoming an area of maneuvering also.

Then I think change to a more sensible 1/1 or 7/1 following 12 months with 1,000 hrs for 03 and beyond.

Do you think a prototype handles this? My Corbel documents do not have any eligibility service exclusion.

Thank you for your comments.

[Guest taj32z]

Earl

Check your document - it may allow for service to be excluded from a specific date. If it does not allow you to exclude service from a certain date then you may have to go to either a non-standardized document or individually designed document.

You are going to want to make sure that when you are excluding service that you are not preventing others from entering when you want them to.

[KJohnson]

Where in 410(a) can you find an exclusion for years prior to the inception of the Plan? Eligibility service can be disregarded only after breaks in service. It is my understanding that you cannot have a blanket exclusion of years prior to the establishment of the plan. See Sections 410(a)(3) and (5).

Of course you can have an exclusion for purposes of vesting service See--411(a)(4) but similar language is noticeably absent in 410.

[Blinky the 3-eyed Fish]

Thank you KJohnson for interjecting some sanity to this discussion. You are absolutely correct you cannot exclude YOS for eligibility prior to the effective date of the plan.

[Earl]

It seems like the rule of parity might be helpful here.

Reading it, it seems (unlike 410(B)) no termination is required, only less than 501 hrs/year for 5 years (at least).

My big issue is working with Drs. with lots of part time ees. Getting a realistic answer to the "did any of these part timers ever work 1000 hrs?" question seems unlikely.

If the plan contains the rule of parity for eligibility/participation it seems like I could reduce it to "... ever work 1000 hrs in the last 5 years?"

Again, my Corbel docs specifically state that they do not use the rule of parity for participation so i have a problem there in any case.

[Guest taj32z]

All I was trying to point out (albeit not very clearly) was that if you are excluding service for eligibility prior to the effective date of the plan, you may be making some employees that the doctor may want to be eligible wait a longer period of time. Sorry for the misunderstanding.

[Blinky the 3-eyed Fish]

There is no "if" as to whether you can exclude eligibility prior to the effective date of the plan. You CANNOT do it.

[Earl]

Actually that's a breath of fresh air. I never met a doctor that wanted anyone in his plan!

But seriously, that is the basis of my concern on this issue. Drs. typically have bad records and are unwilling to look up stuff. I am, at this point, just wondering how to make the data collection a reasonable process tht will result in good information.

Asking "did any one of the PTers ever work 1000+ hrs?" seems to invite a "No" that does not really consider the downside of improperly excluding someone from an ADP test, etc....

Just wondering, again at this point, if there is a reasonable way to put a timeframe on it.

[Earl]

Blinky - You don't think the rule of parity would allow it under any circumstances? thanks -

[Blinky the 3-eyed Fish]

For the rule of parity to apply a person has to be a participant when the BIS begins, so it does not apply to this circumstance.

[david rigby]

Does the doc have an auditor that can help?

Does anyone have summary of payroll records or W2s? For example, if you find that no PT employee earned over $4000 in 1998, then you can reasonably assume all were under 1000 hours.

[KJohnson]

The discussion between BLINKY and EARL is interesting. I agree with Blinky but here is an interesting Q&A from the 1999 ASPA conference. It seems to me that the IRS representatives came to the right answer ( the rule of parity would be inapplicable) but reached the wrong conclusion based on ths answer. Maybe they were only concentrating on 411 and not 410.

.

96. The rule of parity (Code Sections 410(a)(5)(D) and 411(a)(5)(D)) permits service to be disregarded for certain "nonvested participants." Can this rule be used if someone had terminated employment before the employer had even established a plan?

For example, an individual works for an employer for 3 years and then terminates employment. The employer does not have a retirement plan. The individual is rehired after 10 consecutive one-year breaks in service. The employer then establishes a retirement plan. Is the employee required to be credited with the prior 3 years of service or can the rule of parity be used to disregard the prior service?

A. The rule of parity applies to non-vested "participants". An employee who terminated prior to the plan effective date was never a participant and, thus, that prior service need not be counted.

However 410(a)(5) says that all years of service with the employer must be counted with the exceptions in paragraphs (B)©and (D)[with (D) being the rule of parity.] If D is not applicable because the employee was never a participant, it would seem that you are back to the general rule that all years of service must be counted.