Crediting Service for Eligibility

[buckaroo]

When a plan requires less than a year of service to become a participant, it can utilize service conditions based on elapsed time of service, hours counting, or a combination of both types. In this case, one of my Plan amended the eligibility requirements on 1/1/2007 from 1 Year of Service (YOS) with at least 1,000 hours worked to 6 months of service with at least 501 hours worked. Due to this change, it is possible to violate the minimum statutory service standards.

An example of this is as follows. An employee has a DOH on 2/1/2007. He works 500 hours from 2/1/2007 – 7/31/2007 and 500 hours from 8/1/2007 – 1/31/2008. For his initial YOS, he has worked 1000+ hours. Under the minimum statutory service standards, he has met the service requirement and should be permitted to participate in the plan. However, under the service requirements of the Plan, this employee would not be permitted to participate in the plan as he did not work at least 501 hours in the six month eligibility period. (This should rarely if ever happen, but it could still cause the violation.)

While writing this example, I have come up with a question. How do we calculate the 6 months? Is it a running clock or does one period have to be compelted before another starts? Using my example above, the first period used for measuring service is 2/1/2007 -- 07/31/2007. Is the next period used for measuring service 3/1/2007 -- 08/31/2007 (and so on for future periods) or is it 8/1/2007 -- 01/31/2008. I am leaning towards the first option, but I need confirmation. Also a citation would be nice.

Second, does the amendment have to (or can the amendment) state that the service is based on CONSECUTIVE months of service? If it can and does not, does this mean that we will have to track how many hours of service were worked in each month of service by the employee until he meets the service requirement?

Any help would be greatly appreciated.

[WDIK]

In my opinion, the violation example you give is the fault of poor plan language. I would think that the plan would need to be drafted in such a way that the statutory eligiblity standards are met.

[buckaroo]

I agree with fixing the language and we are in the process of changing the language, but I am still trying to determine what happens with the six months. Here is an example:

Month1: 50 Hours

Month2: 50 Hours

Month3: 50 Hours

Month4: 50 Hours

Month5: 50 Hours

Month6: 50 Hours

Month7: 200 Hours

Month8: 200 Hours

Month9: 100 Hours

Month10: 100 Hours

Month11: 50 Hours

Month12: 25 Hours

The person does not meet the hours in the first six months (300). After Month 7, he has 450 hours in the preceeding 6 months. After Month 8, he has 600 hours in the preceeding 6 months. Does he come in on the first entry date following Month 8? Or does he re-start the calc in month 7 and count months 7-12, entering on the first entry date after Month 12.

I appreciate any repsonses.

[Mike Preston]

Either the plan language is unambiguous or it is ambiguous. If it is unambiguous, you need to read it and follow it. If the language is flawed, get it fixed. If it didn't have a letter of determination, have fun in EPCRS. If the language is ambiguous, I would think that the Plan Administrator would interpret it in a way that is consistent with the requirements.

[Peanut Butter Man]

Normally, you would include the maximum eligibility requirements in the amendment, so that the plan states that an employee is eligible to participate when they reach age 21 and complete 1 year of service, where a year of service is completing 1,000 hours of service within a 12-month consecutive period, or whatever acceptable definition of year of service you want to use, OR, if earlier, employees are eligible to participate when they complete 501 hours within a 6 month period of service. You will need to specifically state in the plan language what exactly a 6 month period of service means. Does it mean a 6 month consecutive period, or does it mean that a non-consecutive 6-month period of service where a month will only be counted for eligibility purposes when an employee completes a certain number of hours that month.

If you are guessing on how to calculate the 6-month period of service, you should make the plan language more specific so that you are no longer guessing.

[masteff]

... 6 months of service with at least 501 hours worked...

Maybe it would be useful for you to provide the specific language of the amendment because, as Peanut Butter Man notes, the plan language should make it very clear. Based on the language in the snippet I quoted here, I don't see how you can claim it's a moving 6-month window. I read the snippet as a threshhold, first you reach 6 months elasped, then you check for 501 hours but the 501 hours could be completed before or after reaching the 6 months elasped.