eligibility requirements - 6 month rule

[EGB]

It has always been my understanding that a plan that contains a six months of service requirement for purposes of eligibility to participate could not also attach an hours of service requirement. For example, while it is ok to require six months of service, it is not ok to also require 500 hours of service. Where is this limitation specifically found (ie, regulations, revenue ruling, etc.)? I have found two resources that state you cannot do, but they give no citation. I have also found several prototype sponsors who seem to think attaching an hours requirement to a six months of service requirement is acceptable. Thanks in advance for any responses.

[davef]

The only authority I have ever seen on this issue is Technical Info. Release 1334, which was issued around the time ERISA was enacted. (See Q&A P-3, relating to minimum participation standards) I am reluctant to rely solely on this provision as authority that you can't have an hours requirement for less than 12 months of service. The key point is that the document should also provide language which states that the employee will still be eligible to participate if he/she completes 1,000 hours in a 12 month period. I have seen this approach taken in several IRS-approved prototype plans.

[EGB]

davef - thanks for your help.

Are you saying that you have seen plans that attach an hours requirement to a six month service requirement (or other period of service less than 12 months), and further provide that, even if the employee does not meet the service/hours requirement, he/she will participate if he/she has 1000 hours in a twelve month period?

[This message has been edited by beth beaube (edited 11-23-1999).]

[This message has been edited by beth beaube (edited 11-23-1999).]

[Dave Baker]

Beth -- prototypes from the New England have that provision.

[Guest SRN]

If using a six months of service requirement along with a 1000 hour requirement in a 12 month period if the six months is not satisfied, how can the six month period be calculated if an hours of service requirement can not be attached? Would a six month period of being "employed" work?

[Kirk Maldonado]

If you use six months of service (without regard to the hours of service performed), that is the elapsed time method of crediting service. This methodology involves many rules that are very different than those for the (standard) hours of service methodology. Adding these rules to your plan will necessitate adding several additional pages of text (of the elapsed time rules).

The approach that I recommend (which does not invoke the elapsed time method, is to require 500 hours of service within 6 months.

[This message has been edited by Kirk Maldonado (edited 02-01-2000).]

[Guest SRN]

Is a 3-month 250 hour requirement also acceptable if there are quarterly entry dates?

[Guest qualified plan]

Kirk,

A little clarification, please. You stated that

The approach that I recommend (which does not invoke the elapsed time method, is to require 500 hours of service within 6 months.

If a plan requires such service, and an employee is hired January 1 and terminates May 1 with 500 hours of service, and the employee is reemployed the same year on December 1, can the plan operate to treat this employee upon rehire as having not met the plan's service requirements? I would think that this employee must enter the plan upon rehire, but can you confirm?

Also, if a plan has an elapsed time service requirement of 6 months, what happens if an employee is hired January 1 and terminates May 1, and is then rehired on December 1 of the following year (so the service spanning rules do not apply). Upon rehire, does the employee have to complete 6 months of service to enter the plan, or does the employee only need to complete 1 month?

Thanks in advance.

[rcline46]

I am also interest in other replies, but we follow this rule:

If hours and service are required - BOTH must be satisfied to become eligible. Note that if an age is added - if the hrs/svc is satisfied - they remain satisfied so upon rehire and attaining age they enter immediately.

In you first example, BOTH were not satisfied, so the person is treated as having never become eligible and therefore starts over.

In you second example of service only, if terminated and rehired we look to first anniversary of employment for satisfaction, then switch to plan year. So again the person must requalify.

[Kirk Maldonado]

qualified plan:

Your last posting was as follows:

If a plan requires such service, and an employee is hired January 1 and terminates May 1 with 500 hours of service, and the employee is reemployed the same year on December 1, can the plan operate to treat this employee upon rehire as having not met the plan's service requirements? I would think that this employee must enter the plan upon rehire, but can you confirm?

Also, if a plan has an elapsed time service requirement of 6 months, what happens if an employee is hired January 1 and terminates May 1, and is then rehired on December 1 of the following year (so the service spanning rules do not apply). Upon rehire, does the employee have to complete 6 months of service to enter the plan, or does the employee only need to complete 1 month?

My responses are as follows:

First example. The way I interpret the 500 hours within six month rule is that the person must complete at least 500 hours within six months. However, the person isn't required to work for six months if he or she has completed 500 hours.

This is analogous to the 1,000 hours of service within 12 months. I've never heard anybody take the position that you don't give somebody credit for a year of service (who has completed at least 1,000 hours of service) simply because they aren't employed on the last day of service.

You could require both (as RCline does) for eligibility to participate, but I think it is confusing to use two different standards in the same plan for measuring service. The only reason why you could use both here is because the conditions are less than the statutory maximum.

Second example. If the service spanning rules don't apply, then you don't need to give credit for the prior period of service.

[Guest qualified plan]

Thanks, Kirk.

In the second example, you say that the employee upon rehire is not credited with his prior 5 months of employment.

I'm surprised by that answer, since I thought that under the elapsed time method (unlike under the hours-of-service method), prior "clumps" of service must be counted, subject to the Code's Break in Service (BIS) rules. However, no BIS rules apply here, so why shouldn't the employees prior service be counted?

Thanks.

[Guest qualified plan]

Anybody else willing to opine on whether the employee referred to above has 5 or 0 months of service upon rehire?

To reiterate, the plan has an elapsed time service requirement of 6 months, and the employee was hired January 1, 2003 and terminates May 1, 2003, and is then rehired on December 1, 2004.

Thanks.