Part-Time Eligibilty: Ambiguous Plan Terms?

[Guest inquirer]

Part-timer worked 16 hours per week in a normal 40 hour work week, every year, for at least 5 years. At the end of his employment, Plan administrator first told Part-timer that he was vested, and then more than a year later said he was not vested.

A DB plan's vesting service provides:

For vesting purposes under this Plan, which includes eligibility for deferred vested benefits, an Employee shall be credited with one year of Vesting Service for each Plan Year in which the Employee is credited with at least one thousand (1,000) Hours of Service, or, if less, 50% of regular scheduled Hours of Service in the case of a part-time Employee.

How would you interpret, "or, if less, 50% of regular scheduled Hours of Service in the case of a part-time Employee?"

I say it's 50% of 16 -- which is 8. Therefore, if he worked at least 8 hours per week, every week in each of the five years required for vesting, then he should be vested. Certainly make it past summary judgment?

By the way, there's a so-called "misprint" in the SPD which supports my interpretation above. Plan administrator argues plan document rules. The SPD v. Plan document conflict aside, the plan doc says the following:

Plan defines Hours of Services as [slightly edited]:

The sum of (a) (B) © and (d), subject to (e).

(a) Each hour for which an Employee is paid, or entitled to

payment for the performance of duties for the Employer during the applicable computation period.

(b)Each hour for which an Employee is paid, or entitled to

payment, by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, disability, layoff, jury duty, or leave of absence, subject to the following restrictions:

(1) No more than 501 hours...

(2) No credit hours for worker's comp, or unemployent comp

(3) No credit for reimbursed medical expenses

© Subject to military duty restrictions

(d) Back pay, as long as not already credited in (a)(B)© above

(e) Sections (a)©(d)shall be determined from employer records, and (B) determined from Labor Regs. 29 CFR 2530.200b-2.

Hours of Service credited to appropriate computation period in accordance with Lab. Regs. 2530.200b-2©.

I still say Part-Timer is vested even under this interpretation. What do you think?

[E as in ERISA]

My interpretation of the phrase "50% of regular scheduled Hours of Service" is that a part-timer has to work at least 50% of the hours that a full-timer would work in that same position. 1,000 hours of service is about 50% of the hours required in a position that normally works 40 hours per week (assuming 2 weeks vacation). If the normal hours for a full time position were 30 hours per week, then a person working 16 hours should meet the hours of service requirement.

[Guest inquirer]

So, under your interpretation, that means the drafters of the plan intended the following:

A full-time worker has to work about 48% of their normally scheduled hours (1000 hours / 2080 hours) in order to vest. In other words, a full-timer must work only 19.23 hours per week to become vested.

Under your interpretation, a part-time worker must work at least 20 hours per week, more than the full time worker, in order to become vested.

(50% of the regular scheduled hours -- 40 = 20 hours per week).

Isn't that discriminating against the part-time employees? The benefits for a part-timer, if they do become vested, are pro-rated anyway. Why hold a higher standard for vesting?

[E as in ERISA]

They're not legally required give credit a year of vesting service to an employee with less than 1,000 hours of service during the year, are they? So aren't they giving the part time employee more than he/she is legally entitled to?

[david rigby]

I agree with Katherine. In a nutshell, it states that someone who works at least 50% of a 40-hour week will reach the vesting level, assuming 5 such years.

Note that this vesting provision is very common among various types of pension and profit sharing plans. Also very common is a written statement that the plan document is more important than the SPD.

[pmacduff]

The majority of the plans I work with actually state that you need 1000 hours to receive a "year-of-service" credit for vesting. No discrimination there - 1000 hours is 1000 hours whether you are part-time or full-time.

[Guest inquirer]

:confused: Okay, I understand the minimal requirements for part-time employees and the 1000 hour threshold. However, I'm still confused as to why the drafter chose to provide a special provision for part-time employees if 1000 hours was the magical number?

If the threshold is 1000 hours for eligibility, whether it's for a part-timer or full-timer, why would the drafter specifically provide for a part-timer who who had less than 1000 hours?

From Document:

Employee is credited with at least one thousand (1,000) Hours of Service, or, if less, 50% of regular scheduled Hours of Service in the case of a part-time Employee.

If you interpret 50% of the regular scheduled Hours of Service as 50% of 40 hours, that equals 1040 hours per year. If a part-timer was working at least 1040 hours per year, wouldn't he automatically reach the 1000 hour minimum anyway -- why the need to clarify the "if less than 1000 hours" language if it were not supposed to be something less than 1000?

Sponsors of plan are permitted to be more generous to part-timers at their discretion. Or did the drafter just dump in some commonly used plan language without realizing the effect?

[Guest Keith N]

I think I agree with "inquirer". If the drafters had intended on using strictly a "1000 hour" rule than they would have ended the paragraph after stating the employee needed 1000 hours, but they didn't. They went on to say "if less", not if more or if equal, but "if less".

Also the "typo" in the SPD would imply that it was the intent to grant part time employees vesting credit even if they worked less than 1000 hours.

Obviously, you would need to see the actual document to make a complete interpretation.

Also, just because the participant may be vested, doesn't mean that they earned any benefit. It's common to also required 1000 hours for benefit accruals so you would also need to check that language also. This person could be 100% vested to nothing.

[Guest inquirer]

The plan document supports the argument for the less than 1000 hours eligibility in its language on benefit credit.

"Any Participant employed in a job classification which requires not less than 500 hours, but less than 1000 Hours of Service in a Plan Year shall receive credit for 1/2 of a year of Benefit Service, provided such Participant was in pay status for each and every payroll period in the Plan Year, Benefit Service shall be credited pro rata, calculated as follows...."

[E as in ERISA]

I think that your drafter did intend to extend vesting credit to those with less than 1000 hours. But you were suggesting that the participant had to work 50% of the participant's own regularly sheduled hours (8 out of 16 hours per week)( in order to be vested. That doesn't make sense -- it gives vesting for any participant who only shows up for work half the time. I'm suggesting that the participant has to work 50% of the regularly scheduled hours for a full time participant in the same position. A lot of full time jobs require less than 40 hours per week. There are many 35 to 38 hour per week jobs (to make commuting easier, etc.). I believe that some full time jobs require as few as 30 hours. So your participant might be entitled to full vesting if full time employees in his position are only required to work 30 hours per week.

[david rigby]

I agree with Katherine's comment RE the intent, but Keith also has a good point about the actual language. Poor drafting.

However, when document provisions are ambiguous, the next best source of help is precedent. Has this issue been questioned, and decided, previously?