Excluding part-time employees

[Brian Gallagher]

I seem to remember a directive (many moons ago) that the IRS or DOL came out with saying that plans can't exclude specifically part-time employees. Can anyone give me the number. And a link to it, too, would be awesome!

Thanks in advance.

[KJohnson]

Example (3). A plan which requires 1 year of service as a condition

of participation also excludes a part-time or seasonal employee if his

customary employment is for not more than 20 hours per week or 5 months

in any plan year. The plan does not qualify because the provision could

result in the exclusion by reason of a minimum service requirement of an

employee who has completed a year of service. The plan would not qualify

even though after excluding all such employees, the plan satisfied the

coverage requirements of section 410(b).

http://frwebgate.access.gpo.gov/cgi-bin/ge...=2000&TYPE=TEXT

[Brian Gallagher]

I have a plan that wants to exclude them. They currently have no service requirement. The example in the notice says that the plan would fail to qulaify if it requred 1 year of service. Would that make any difference?

[KJohnson]

No

[Brian Gallagher]

Is there something with better language that doesn't reference the 1 year of service. I know my client will harp on that point.

[R. Butler]

"Part-time" can't be an excluded job classification because the classification relates to service. Generally you can only exlcude them by imposing a service requirement (i.e. 1 year).

Can you classify most of them by some other job description (i.e. runner, receptionist, etc.)? Assuming you meet coverage classifications that don't relate to age or service are acceptable.

[Brian Gallagher]

I thought about telling the client that if the people were classified differently, it may be possible to exclude them. However, I don't want them to just call them something other than "part-timers" (like "hours-challenged employees" lol); it would be a semantics issue.

I haven't ran the coverage numbers yet either, but eyeballing it looks like they'd be okay.

[Harwood]

In the September 15, 1996 issue of Employee Benefit News," "Attorneys cited their favorite [employer screw ups]."

The first bullet point was: "Denying coverage to part-timers as a class. While restrictions can be put on receiving benefits based on very specific criteria (for example, working fewer than a stipulated number of hours), the blanket statement that 'part-timers aren't covered' is not an adequate definition, says Bill Gerek, a Chicago-based ERISA attorney."

[rcline46]

We have had success with 'interns' some of whom worked full time. But of course we had to include them in all tests if >21/1000 hrs.

[g8r]

Some prototype plans include an eligibility option of ____ hours of service within ___ month(s), but in no event more than 1 YOS. Right now you stated that the plan has no eligibility condition. If you were to require 100 hours within one month, that would impose an eligibility condition but the employer might be willing to live with that. Of course, if a part-time employee actually completes 1000 hours during a year, then the person would need to enter the plan under this type of condition.

[E as in ERISA]

Same as G8R, I've seen a lot of plans with determination letters that have a one year/1,000 hours of service requirement but essentially allow "EARLY" entry for those that meet some other standard (one which only full timers would meet).

[Guest pjb]

That's interesting to see a prototype containing this as an option. I would think the multiple entry could affect coverage since there could be a nonbenefiting nonexcludable NHCE (the late entering part-timer).

Although I've seen non-prototypes providing for "early" entry for full timers, I would want a determination letter on it.

[Brian Gallagher]

What the plan wants to do is allow anyone who is scheduled to work more than 1000 hrs to be allowed immediateenrty, and people who are scheduled to work less than 1000 hrs (in a year) to not be eligible. This is all based on scheduled hours, really meaning full-time ee's get in and part-timer's don't.

[Guest pjb]

I think some of us are saying you can do this as long as the document provides for entry for someone who was previously expected to not work 1000 hours, but ended up working 1000 hours. I assume typical language is to let them in upon completing the 1000 hours year of service (or some entry date following). This would appear to satisfy the statutory eligibility requirements.

However, I'm not sure if you can consider the part-time worker who ends up working 1000 hours an excludable employee for 410(b).

For example, say you have a calendar year plan year, 401k/PS plan, 2 employees, one HCE, both starting 7/1/03 (the plan's effective date). The NHCE is expected to have under 1,000 hours, so I adopt a plan with immediate entry, but excluding the part-timer using the language above. I allocate the '03 PS and 401k for the HCE only and say the plan passes 410b, etc because only HCE's benefit. On 6/30/04, the NHCE attained the 1,000 hours at anniversary, making him eligible. Does this mess up the allocation at '03 plan year end? I don't know. Maybe you just need to give him a PS allocation for 2004 and let him start 401k at 6/30/04.