Year of Service and Part-time Participants

[Guest jgordon]

I have a cash balance plan (which was adopted last year and not converted) that has as its participants Target Employees (owner-doctors) and all employees who customarily work less than 20 hours a week and are not able to participate in the 401(k) (the 401(k) requires a year of service for eligibility). I just ran into a problem - the vesting schedule is a 6 year graded vesting schedule where a year of service is defined (in accordance with IRC 411(a)(5)) as 1000 hours within a plan year.

Problem is, the part-time employees will never accumulate a year of service (we are talking really part-time here). And if they do they then become eligible to participate in the 401(k) and therefore not elgibile for the CB plan. Therefore only the HCE doctors will ever vest in the benefits (this seems pretty discriminatory).

I cannot find any authority stating that a year of service can be defined as less than 1000 hours (except for the exception carved out for seasonal and maritime employees). Does anyone have any thoughts or can anyone direct me to any authority regarding the 1000 hours (why it is defined as 1000 hours, the intent for such a definition, etc.)

Thanks.

[Appleby]

The plan may reduce the number of hours to an amount less than 1000, . The 1000 hours is a maximum (cap) refer DOL Regs. §2530.202-2(a),

[david rigby]

Is top-heavy an issue here?