Entry date and prior service for a rehire?

[John A]

Situation: an employee meets the hours and age requirement for eligibility but terminates employment prior to an entry date. The employee then has a break-in-service under the plan's break-in-service rules. When this employee is rehired, may the prior year of service be disregarded entirely, or only until the employee completes a year of service after rehire date? Would the entry date be the date of rehire, the first entry date after date of rehire, or the first entry date treating the employee as if the employee was a new hire on the date of rehire?

I am confused by the seeming difference between IRS Regs 1.410(a)-4(b) and 1.410(a)-5.

1.410(a)-4(b)says:

(b) Time of participation:

(1) General rule.

A plan is not a qualified plan (and a trust forming a part of such plan is not a qualified trust) unless under the plan any employee who has satisfied the applicable minimum age and service requirements specified in § 1.410(a)-3, and who is otherwise entitled to participate in the plan, commences participation in the plan no later than the earlier of:

(i) The first day of the first plan year beginning after the date on which such employee first satisfied such requirements, or

(ii) The date 6 months after the date on which he first satisfied such requirements, unless such employee was separated from service and has not returned before the date referred to in subdivision (i) or (ii), whichever is applicable. If such separated employee returns to service after either of such dates without incurring a 1-year break in service, the employee must commence participation immediately upon his return. In the case of a plan using the elapsed time method described in § 1.410(a)-7, such an employee who has a period of absence commencing before the date referred to in subdivision (i) or (ii) (whichever is applicable) must commence participation as of such applicable date no later than the date such absence ended. However, if an employee's prior service is disregarded on account of the plan's break-in-service rules then, for purposes of this subparagraph, such service is also disregarded for purposes of determining the date on which such employee first satisfied the minimum age and service requirements.

In the situation presented by Sara H, it would appear that whether or not the 10/1/96 to 9/30/97 period of employment is used in determinining participation depends on the plan's break-in-service rules. If the plan does not have break-in-service rules, I would believe the employee would enter immediately upon rehire. On the other hand, if the plan's break-in-service rules allow for disregarding service prior to a break-in-service, the employee would be treated as a new employee. Does anyone disagree with this? Can anyone else add anything helpful for determining entry dates for rehires that had met the plan's eligibility requirements but terminated employment prior to an entry date?

1.410(a)-5 says:

IRS Reg 1.410(a)-5 says the following:

1.410(a)-5 Year of service; break in service.

(a) Year of service.

For the rules relating to years of service under subparagraphs (A), ©, and (D) of section 410(a)(3), see regulations prescribed by the Secretary of Labor under 29 CFR Part 2530, relating to minimum standards for employee pension benefit plans.

...

© Breaks in service:

(1) General rule.

This paragraph provides rules with respect to breaks in service under section 410(a)(5). Except as provided in subparagraphs (2), (3), (4), and (5) of this paragraph, all of an employee's years of service with the employer or employers maintaining a plan are taken into account in computing his period of service under the plan for purposes of section 410(a)(1) and § 1.410(a)-3.

...

(3) One-year break in service:

(i) In general.

In computing the period of service of an employee who has incurred a 1-year break in service, for purposes of section 410(a)(1) and § 1.410(a)-3, a plan may disregard the employee's service before the break until the employee completes a year of service after such break in service.

(ii) Examples.

The rules provided by this subparagraph are illustrated by the following examples.

Example (1). Employee A completes a year of service under a plan computing service by the actual counting of hours for the 12-month period ending December 31, 1980, and incurs a 1-year break in service for the 12-month period ending December 31, 1981. The plan does not contain the provisions permitted by section 410(a)(5)(b) (relating to 3-year 100 percent vesting) and section 410(a)(5)(D) (relating to nonvested participants). Thereafter, he does not complete a year of service. As of January 1, 1982, in computing his period of service under the plan his service prior to December 31, 1981, is not required to be taken into account for purposes of section 410(a)(1) and § 1.410 (a)-3.

Example (2). The employee in example (1) completes a year of service for the 12-month period ending December 31, 1982. Prior to December 31, 1982, in computing the employee's period of service as of any date occurring in 1982, the employee's service before December 31, 1981, is not required to be taken into account for purposes of section 410(a)(1) and § 11.410(a)-3. Because the employee completed a year of service for the 12-month period ending December 31, 1982, however, his period of service is redetermined as of January 1, 1982. Upon completion of a year of service for 1982, the employee's period of service, determined as of any date occurring in 1982, includes service prior to December 31, 1981.

Would someone better than I am at interpreting the regs (or who has heard this issue addressed and answered) clear this up for me? Thanks!