Eligibility Upon Rehire

[PLAN MAN]

McKay_Hochman___Commentary.htm

This example was provided today by McKay Hochman in their E-mail Alert FAQ. Do you agree with their conclusion? Under the statutory rules does an employee lose their service (if initially employed less than 12 months) when they incur a break-in-service? This seems like a different interpretation of the regulations than I've been taught. Following is the information from the e-mail:

How does the statutory eligibility rule (one year and 1,000 hours of service) apply when an employee works 1,000 hours, leaves before completing 12 months of service, and is then rehired? 09/12/07 E-mail Alert 2007-12

The answer depends directly on when the individual is rehired.

The following fact set and examples will clarify the rules.

Plan design fact set for the examples:

Calendar year 401(k) plan

Plan eligibility: 1 year: 1,000 hours

Plan entry date: monthly

This plan counts all employee service.

Example 3

Employee DOH: March 26, 2006

Employee DOT: January 9, 2007, with 1,600 hours of service

Employee DOR: March 29, 2009

Although the employee satisfied the 1,000-hour requirement, the employee left without completing 12 months of service necessary to satisfy the one-year portion of the statutory rule and then incurred a break-in-service. Therefore, upon rehire after the break-in-service, the employee starts over as a new employee and would not get credit for the previous service.

The answer would be different if 1,000 hours AND 12 months of service had been completed and then the employee had terminated before the plan's entry entry date. In such a case, though there was a break-in-service, because the employee satisfied the statutory eligibility requirements before severing service, upon rehire the employee would become a participant.

What do you think?

[maverick]

Sal tripodi's ERISA Outline (2004 edition) [chapter 2, eligibliity rules, section III, measuring a year of service, part B.3, when a year of service is credited, sub-paragraph 3c] says:

"The fact that a y.o.s. is not credited until the end of the eligibility computation period does not mean the employee must be employed continuously during that computation period in order to receive credit for the year. In fact, the employee does not even have to be employed on the last day of the computation period to receive credit for a year of service."

He includes a couple examples, none of which addresses a situation involving a 1 year break in service

Perhaps someone with a more current edition in electronic format can copy/paste a pertinent example?

Maverick

[PLAN MAN]

The statement is the same in the 2007 edition of The ERISA Outline Book. And that is the way I always understood eligibility.

Does anyone operate under the interpretation made by McKay Hochman? It would seem to be in direct conflict with Sal Tripodi's statment. I previously found an error in McKay Hochman's information, could this be another error?

Eligibility is such a key piece of a plan's compliance with IRS regulations, I think it is important to make sure accurate information is provided and understood. Can anyone confirm or discredit the McKay Hochman information? Thanks.