Last day Employment Requirement in a DB plan

[flosfur]

Assuming the 401(a)(26) and 410(b) are satisfied and, if applicable, top heavy accruals provided, can a DB plan have a "last day employment" to accrue a benefit (other than the Top Heavy) under the plan formula?

I have never seen it yet but that doesn't mean it is impermissible.

[Mike Preston]

No.

[flosfur]

Need more than that - such as why and where is it prohibited?

[Mike Preston]

The fact that you haven't seen it is a pretty good indication that it isn't allowable. But if you need more, try 411(b)(4)(D). The reg cite is 1.411(b)-1(f) [which, incidentally, indicates that the provisions are not applicable to DC plans], and that points you to DOL regulations under 2530. See 2530.204-1. But the whole of 2520 and 2530 are indeed a wonder to behold. I think you'll find that an accrual must be provided for anybody that works at least 1000 hours. See 2530.204-2©. There can be a higher threshold for full accrual (such as 1800 hours). Hence a plan can be designed so that if somebody works precisely 1000 hours they can receive an accrual of something like 1000/1800 of the "full" accrual for the year. However, if that is done, then compensation has to be annualized. See 2530.204-2(d). Hence, pro-ration just isn't done in many plans. 'Nuff?

[mbozek]

Isnt the requirement for partial year benefit accrual a required provision in the plan document for qualification under 401(a)?

[Archimage]

I will have to say that I have never considered a DOL reg as "a wonder to behold".

[MGB]

mbozek,

Not if you give a full year for 1000 hours (under 1000 hours gives nothing, even if they terminate in a year when they would have worked full time if they stayed). If you use a higher threshold for a full year, then you must give partial year accrual.

[mbozek]

But doesnt that state compliance with the rule, e.g. the employee gets accrual credit for completion of at least 1000 hrs. of svc? It is still in the plan document.

[MGB]

I misunderstood your initial comment. Absolutely -- just how the partial year works must be spelled out in the plan document.

[Guest FormsRmylife]

Just to address a point that this discussion raised in our offices. ERISA service rules and Code section 411 do not apply to a church or government sponsored plan; therefore, a last day of plan year requirement can be used for this limited group of DB plans.