Initial Eligibility

[austin3515]

Calendar year Plan requires one year of service with 1,000 hours of service for eligibility, and 1,000 hours each plan year for an allocation. There is no last day requirement. Entry Date is retroactive to first day of plan year in which eligibility requirements are satisfied.

Hire Date = November 15, 2002.

Termination Date = September 30, 2003

Employee works more than 1,000 hours total for the employer (and so during the 12 consecutive month period beginning on his hire date). Am I threfore correct in saying that the employee became a participant on January 1, 2003?

Also, the employee worked more than 1,000 of his total hours during calendar 2003, and so he should therefore get an allocation?

Am I mistaken anywhere?

[Guest yukon]

But he didn't complete 12 consecutive months of service. So he'd never meet the initial eligibility requirement. Right?

[ccassetty]

You will need to look very closely at the plan document to determine exactly how eligibility is to be determined, but most plan documents provide for a year of service (12 month period) in which the employee has completed 1,000 hours. Unlike vesting, where the 1,000 hours alone is enough to get another year of service without regard to how many months the employee has actually worked, eligibility for plan entry generally requires the completion of the full number of months of service, in this case 12. I don't believe the participant would be eligible because he/she terminated before the anniversary of date of employment. However, you must look closely at the plan document to be certain of the wording. It is possible that the full 12 months is not required.

Look at it this way. A full time employee will generally make the 1,000 hours of service requirement in about 6 months. But in a plan with quarterly entry and a one year/1,000 hour eligibility, you wouldn't bring the employee into the plan at the next quarterly entry date after completing 1,000 hours and 6 months of service, the employee would have to wait until after he/she had completed the full 12 months of service as well.

You didn't specify, but I would hope that this is not a 401(k) plan with retroactive entry.

[pmacduff]

I believe he had to work until November 14th, 2003 to satisfy the initial year of service requirement for eligibility(12 months). He then would have entered retro January 1 as you suggest and would receive a 2003 allocation if he had not terminated. Since he terminated Sept. 30th before completing his intitial 12 month YOS - he does not enter. How does your document define a YOS? Is the definition different for eligibility?

Guess we're all on the same page!!!!!!!

[austin3515]

Not a 401(k).

I'm basing the question on what I read in the ERISA Outline Book (and in the DOL Regs as follow up). Both indicate that you do not need to be employed at the end of the computation period. In fact, both indicate that you cannot consider whther or not they were employed at the end of the computation period.

Ordinarily this is not an issue because the entry date is typically AFTER meeting the eligiblity requirements. If the employee is not employed on the entry date, the Plan can provide that the employee never becomes a participant.

But alas, in this case, there are retroactive entry dates. Therefore, the employee is creditted with a year of service on November 14, 2003. Plan Entry is retroactive to January 1, 2003, and he WAS employed on that date!

Please rebut as I always thought you both are saying was the case.

Thanks!

[austin3515]

'If you have the ERISA Outline Book, see Chapter 2, Section 3, Part III., 3c. (2002 edition). Probably didn't move in the 2003 edition.

Sal says "In fact, the employee does not even have to be employed on the last day of the computation period to receive credit for the year of service."

[R. Butler]

I assume that Sal is referring to his example in 3.c.2.) concerning seasonal employees. That example is not the same as the scenario you have described.

Based on the facts that you have presented I agree with everyone else that he is likely not eligible based on the fact that he did not complete the eligibility period. You should however review your documents eligiblity provisions.

[austin3515]

http://www.dol.gov/dol/allcfr/Title_29/Par...2530.200b-1.htm

(b) Rules generally applicable to computation periods. In general,

employment at the beginning or the end of an applicable computation

period or on any particular date during the computation period is not

determinative of whether the employee is credited with a year of service

or a partial year of participation, or incurs a break in service, for

the computation period. Rather, these determinations generally must be

made solely with reference to the number of hours (or other units of

service) which are credited to the employee during the applicable

computation period. For example, an employee who is credited with 1000

hours of service during any portion of a vesting computation period must

be credited with a year of service for that computation period

regardless of whether the employee is employed by the employer on the

first or the last day of the computation period. It should be noted,

however, that in certain circumstances, a plan may provide that certain

consequences follow from an employee's failure to be employed on a

particular date. For example, under section 202(a)(4) of the Act and

section 410(a)(4) of the Code, a plan may provide that an individual

otherwise entitled to commence participation in the plan on a specified

date does not commence participation on that date if he or she was

separated from the service before that date. Similary, under section

204(b)(1) of the Act and section 411(b)(1) of the Code, a plan which is

not a defined benefit plan is not subject to section 204 (b)(1) and

(b)(3) of the Act and section 411 (b)(1) and (b)(3) of the Code. Such a

plan, therefore, may provide that an individual who has been a

participant in the plan, but who has separated from service before the

date on which the employer's contributions to the plan or forfeitures

are allocated among participant's accounts or before the last day of the

vesting computation period, does not share in the allocation of such

contributions or forfeitures even though the individual is credited with

1000 or more hours of service for the applicable vesting computation

period. Under certain circumstances, however, such a plan provision may

result in discrimination prohibited under section 401(a)(4) of the Code.

See Revenue Ruling 76-250, I.R.B. 1976-27.

With respect to the latter bolded item, this is why I contend that retroactive effective date demands the participant became a participant on 1/1/03 (ie., this section does not apply because he was employed on the day he was able to enter the Plan).

[WDIK]

I think that the real issue was already brought up by ccassetty. If the document language is such that eligibility is satisfied upon completion of 1000 hours, the employee is an eligible participant as of the first of the year. If the document language indicates that eligiblity is satisfied after one year of service (during which 1000 hours were credited), the employee is not an eligible participant because the termination date precedes the completion of the one year period.

The prototype document that we use allows the adopting employer to select between these options.

[austin3515]

Rather, these determinations generally must be

made solely with reference to the number of hours (or other units of

service) which are credited to the employee during the applicable

computation period.

This right after the first bolded excerpt.

What exactly is the DOL saying here then? When I see words like "MUST" and "SOLELY..."

I don't know...

Also, I've looked at a few documents and NONE require employment at the end of the 12 month period. They only say the computation period commences on the first day of employment.

[Guest qualified plan]

I agree with austin3515, and I don't believe CCassety is correct in saying that:

eligibility for plan entry generally requires the completion of the full number of months of service, in this case 12

As Austin3515 pointed out, under the "hours of service" method an employee is not (and cannot be) required to be employed for the entire computation period in order to be credited with a year of service.

Feel free to correct me, but please provide a cite to support your conclusion.

[WDIK]

Part of my previous post needs to be corrected. It should have read "volume submitter" rather than "prototype." Following are excerpts from these volume submitter documents for the two different scenarios:

An Employee will be deemed to have completed a Year of Service on the last day of the applicable eligibility computation period during which the Employee is credited with 1,000 Hours of Service.

An Employee will be deemed to have completed a Year of Service on the same date the Employee is credited with 1,000 Hours of Service, even if such date occurs before the last day of the applicable eligibility computation period.

[austin3515]

With a name like qualified plan, how can you dispute?

I mean it's not even his middle name, it's his full name!

[austin3515]

WDIK - With respect to your first provisions, the "last day" simply refers to WHEN the year of service will be creditted. It does not specify that employment is required on that date in order for a YOS to be creditted.

[WDIK]

...the fog slowly clears...

I see the point that you are trying to make with the retroactive entry date. I have nothing that disputes the position you are taking.

[Blinky the 3-eyed Fish]

Let me see if I can surmise the argument for the person being eligible.

A year of service does not require employment on the last day of the period, so the person is credited with a year of service on the basis that 1,000 hours were worked from DOH to DOT. The plan can condition that employment is required on the entry date, but since the entry date is retroactive while the participant was employed he satisfies that requirement as well.

Here is a portion of the DOL reg previously quoted:

For example, under section 202(a)(4) of the Act and

section 410(a)(4) of the Code, a plan may provide that an individual

otherwise entitled to commence participation in the plan on a specified

date does not commence participation on that date if he or she was

separated from the service before that date.

The individual is not entitled to commence participation in the plan until satisfaction of 12-months of service. The magic date here is 11/14/03, not 1/1/03. What this is saying is that the employee has a YOS for eligibility and has satisfied the eligibility requirements if ever reemployed. But the employee was not employed 11/14/03 and thus never became eligible for the plan. Now if he was hired between now and the end of the year, he would be eligible 1/1/03.

BTW, see pg 2.37 of the 2003 Edition for some discussion on retroactive entry. I see nothing there that hints toward him being eligible. Also, from personal experience, this whole discussion is a first.

[R. Butler]

Blinky,

I am still on board with that conclusion, but I am having trouble defending it. I can argue that Austin is misconstruing each of his points, but when Qualified Plan Boy asks for a cite I can't give one.

A year of service is a 12 month eligibility period in which employee works 1,000 hours. I know that the year of service is credited at the end of the eligibility period. So its 11/14/03, employee did work 1,000 hours and is credited with a year of service. I have always been taught (apparently as most of us have) that employee also has to also be employed on or rehired after 11/14/03. However, I can't really find any legal support fot that position. When I think about it seems that I am requiring 3 three things: 1,000 hours during the period, employment on the entry date, and employment on after 11/14/03. However, I can't really find any legal support for that 3rd requirement.

[Blinky the 3-eyed Fish]

The employee is not "entitled to commence participation in the plan" until 11/14/03. Until that date, he has not satisfied the eligibility requirements.

BTW, you are not requiring employment on the entry date. That is not the date referenced in the code section I used. For example, say the retroactive entry date was 7/1/03, not 1/1/03. If the person was hired 11/15/03, fired 6/15/03 and rehired 7/15/03, upon reaching 11/14/03, he would enter the plan retroactively to 7/1/03 although not employed on that date.

[Guest qualified plan]

With everybody's permission, I would like to clarify the various opinions stated so far with a hypothetical question (to be clear, please don't tell me to look at the plan document--it's a hypothetical question), as follows:

Assume a 401(k) plan requires that employees enter the plan on the first day of the month after they complete a Year of Service. A YOS for eligibility is determined under the Hours of Service method, and 1,000 hours are required. Employee A is hired on January 1, 2003 and works until August 30, 2003 and terminates employment.

Employee A returns to employment on January 1, 2005. When does Employe A enter the plan?

Two choices:

(1) Employee A MUST enter the plan on January 1, 2005.

(2) The plan CAN provide that Employee A must complete a Year of Service during 2005 and enter the plan January 1, 2006.

I vote for choice (1), referring to Austin3515's DOL Reg. quote.

Anybody else?

[Blinky the 3-eyed Fish]

How about neither. The plan would either have the break-in-service rules in effect or not. If they are not in effect, then the person would enter 1/1/05, their rehire date, because they had previously satisfied the eligibility requirements. If they are in effect, then the person would enter retroactively to 1/1/05 after completing a year of service from 1/1/05.

[Guest qualified plan]

For clarity, let's assume there is no one-year BIS hold-out rule, as this is a 401(k) plan.

[R. Butler]

Qualified Plan,

Assuming no BIS rule then 01/01/05, but I'm confused, how does your question relate to Austin's? Based on the facts Austin gave, he would answer 01/01/03.

[ccassetty]

After mulling the original question over in light of the other posts, I have to admit that I am not as sure of my original assessment as I was before, but I am still not convinced that the participant is eligible retroactively.

I still think that the 12 month requirement is the key. No, he doesn't have to be there on the last day of that 12 month period to meet the eligibility requirements, and if he were to be reemployed before the end of the year, he would be eligible for the retroactive entry to 1/1/03 upon rehire.

This participant was employed on 1/1/03 but was not eligible to enter on that date. He was not eligible to enter the plan until the completion of 1,000 hours in a 12 month period. He therefore was not eligible to enter the plan (regardless that participation would be effective retroactively to 1/1/03) until 11/15/03 after the completion of the 12 month computation period. On 11/15/03 he was not there, how can he come into the plan? He was not there, as in he was not there at the time he was eligible to come into the plan, not in the sense that he wasn't there on the last day of the computation period.

Maybe I'm just being stubborn, but I don't believe a retroactive entry date gives a terminated participant the right to join the plan.

Gee, I wonder why I hate retroactive entry dates.

Carolyn

[Guest qualified plan]

R Butler asked:

Assuming no BIS rule then 01/01/05, but I'm confused, how does your question relate to Austin's? Based on the facts Austin gave, he would answer 01/01/03.

I'll defer to Austin, but I belive he would agree in my hypothetical that the answer would be 1/1/2005 since there is no retroactive participation provisions in my example.

As Ccassety points out, that's what makes austin's question different from my hypothetical. In other words, everybody seems to agree that, as in my hypothetical, an employee need not be employed on the last day of a computation period in order to receive credit for a year of service. However, given that, there is some question as to whether austin's particpant has fullfilled the plan's condition for retroactive participation, since that participant perhaps never fulfilled all the conditions for entering the plan (i.e., by not being employed the last day of the computation period).

IOW, to support Ccassety's interpretation, perhaps the better way to look at this plan is that it requires an employee to complete 1,000 hours of service and enter the plan on an entry date which is the last day of the participant's computation period. Once the participant enters the plan on this date, his allocation (assuming this is a DB plan) is based on compensation earned for the entire calendar year.

[R. Butler]

Thanks for your reply. I missed the entry date difference. I agree with your summation of the issue.