Elapsed Time

[Guest pjb]

401(k) only plan has 3 months eligibility service requirement and quarterly entry (1/1, 4/1 etc). Employee is hired 6/23/03, layoff 8/19/2003, and rehired 5/17/04.

What is date of participation?

[Guest qualified plan]

The employee's eligibility computaion period would run from 6/23/03 through 6/22/04. If the Plan requires 3 months of service during that period, the employee would have completed such service at the end of that period, thanks to the applicable service spanning rules. The employee would then enter the plan on 7/1/04.

[Guest pjb]

How is it not 10/1/03? I'm running ADP for plan year end 6/30/04 and would like to be sure.

[Blinky the 3-eyed Fish]

Your document should have some language that requires an employee to be employed on their entry date. Also, while I don't have your document in front of me, I believe the entry date should be upon rehire, 5/17/04. The service spanning rule effectively gives the participant credit during the period in which he/she did not work for the employer because there wasn't a 12-month gap. Thus, when reemployed, he had met the eligibility requirements at that point and entered on that date.

[Guest qualified plan]

I will amend my answer somewhat to take into account Blinky's point. I agree with Blinky, you should check the document as it may provide that the employee enters the plan upon rehire.

[Harwood]

Participant is indeed eligible on rehire date of May 17, 2004; all compensation-based calculations start May 17.

The problem I often see is that an employer seems to have the right - if the document is silent - to make the employee wait until the July 1 entry date to start deferrals.

[Guest qualified plan]

Harwood,

Why do you consider that a problem? It seems to me to be a legitimate design choice.

[Harwood]

Since all benefits start accruing in May, I prefer allowing the rehire to begin deferring when they become eligible.

After all, compensation for ADP testing will start accumulating May 17. It seems unfair - though perfectly legitimate - to make the Participant wait until the July entry date to make deferrals.

[Guest ActuaryWannabe]

ERISA Outline Book:

The plan must include specific provisions that address the participation of employees who are reemployed

by the employer. Rev. Rul. 80-360, 1980-1 C.B. 142. If an employee is re-employed, the

administrator first must determine if the plan imposes any break in service rule. If there is no break in service

rule, and the employee had already satisfied the eligibility requirements, the employee must re-enter the plan

on the date of re-employment (regardless of the plan’s normal entry date system). If the employee had not

satisfied the eligibility requirements before his termination, the employee will first have to finish completing

those requirements before becoming a participant in the plan.

[Guest pjb]

In this case, the employee didn't make any deferrals as of 6/30 but had comp between 5/17/04 and 6/30/04, so I guess he's in the test with 0 ratio and 5/17/04 date of participation.

However, some comments regarding comp as of rehire date for ADP testing are a little confusing. I would think that would depend on the plan. This person had comp both prior to termination and after rehire (during the plan year) and the plan counts all plan year comp for ADP.

[Harwood]

PJB - you are right that comp is for the full year. I missed the fact that this was not a calendar year plan.

Still I wonder: just because the rehire immediately re-enters the plans, do the regulations and rulings require that they be allowed to file a deferral election form?

On-going participants are often limited to changing their deferral percentage at a quarterly entry date. Can't a prior participant who becomes re-eligible mid-quarter be made to wait to defer until the next entry date, if provided for in the plan document.

[Of course some payroll departments leave a deferral percentage in the employee's "master control" and the deferrals start up "automatically" upon rehire.]

[Blinky the 3-eyed Fish]

On-going participants are often limited to changing their deferral percentage at a quarterly entry date. Can't a prior participant who becomes re-eligible mid-quarter be made to wait to defer until the next entry date, if provided for in the plan document.

If this guy was a prior participant and he had a deferral election on hand, it would have to be reasonable that he couldn't alter this election until the next time period allowed. But this guy was never a participant until his re-hire date. He needs to be able to defer immediately upon entering the plan. If he wasn't given that option, then he is owed a QNEC in accordance with Rev. Proc. 2003-44.

[Tom Poje]

I'm still unclear why the particiapnt enters upon rehire.

The title of the thread was elapsed time.

doh 6/23/03

dot 8/19/03

ee has not completed 3 months of service.

rehired 5/17/04

I would have thought until 6/21/04 he finally completes the three months.

the quote ActaryWanabee - especially the last line would seem to support that idea.

[david rigby]

That's what I was wondering also.

[Harwood]

I am not paying close enough attention. May 17 is wrong.

[Kirk Maldonado]

The service spanning rules of the elapsed time method come into play here, requiring that the period of unemployment be treated as employment. See Treas. Regulation 1.410(a)-7.

(Any time you only have a length of service requirement without also imposing a minimum number of hours component also, you automatically invoke the elapsed time rules.)

[Blinky the 3-eyed Fish]

Why hasn't he completed 3 months of service on 5/17? Consider the service spanning rule which credits service during periods not employed when less than a 12-month gap occurs. Thus as of 5/17, the person actually is credited with continuous service from his original date of hire.

Oops, looks like I am very tardy in my response. Go Kirk!

[david rigby]

(Any time you only have a length of service requirement without also imposing a minimum number of hours component also, you automatically invoke the elapsed time rules.)

Thanks. As Tom pointed out, the title of this thread is "Elapsed time" but it may be that the plan document really does impose some hours requirement. Absent that information, we seem to be assuming it has none.