Service with Unrelated Employer

[Just Me]

Can a plan credit service with an unrelated employer for eligibility, vesting and accrual of benefits? If so, what are the potential pitfalls (like how are we going to verify the prior service, and what if all of the employees in this category are HCEs)?

Thoughts are appreciated.

[Andy the Actuary]

To facilitate hiring, some not-for-profit plans credit service for employment in a related industry after completion of waiting period. Some phase it in such as one year for each year of service with the new employer; others, credit after completion of so many years of service. Typically, the prior service picked up is counted for benefit calculation purposes only. As long as you have a small number of other (home-grown) HCEs, you likely will not have a 401(a)(4) problem. Also, it depends whether the Plan has always had this feature or your adding it now (re: grants of past service).

[JAY21]

I've seen this type of service crediting done in a few law firm plans. They've varied in the areas of crediting but some have done it for all purposes you mentioned (eligibility, Vesting, Benefit accruals). In general they haven't had any discrimination problems (though certainly this is a facts and circumstances thing). I suppose the employee could get a letter from a prior employer for periods of service worked, this is one of the few areas of past employment verification that doesn't seem to get past employers in trouble.

[tymesup]

To facilitate hiring, some not-for-profit plans credit service for employment in a related industry after completion of waiting period. Some phase it in such as one year for each year of service with the new employer; others, credit after completion of so many years of service. Typically, the prior service picked up is counted for benefit calculation purposes only. As long as you have a small number of other (home-grown) HCEs, you likely will not have a 401(a)(4) problem. Also, it depends whether the Plan has always had this feature or your adding it now (re: grants of past service).

I had a charity that credited service with other local branches. Their wrinkle was to carve out the benefit from the other branch so the service wasn't double counted. Some folks moved multiple times so there were carve-outs of carve-outs and adventures in data.

[Belgarath]

We've had this happen quite often, particlarly in medical practices for some reason. It has frequently been a business merger type of situation, and often it is HC only. The IRS has always approved this when we submit for a DL, never been a problem. I think where you might have a problem is a pattern - for example, you credit service in some mergers with HC only, yet you do not if there are NHC involved.