Plans that require 1 year of service PLUS 1,000 hours

[Guest meeh3704]

Does a plan that requires 1 year of service plus 1,000 hours of service violate Code Section 410(a)? Treas. Reg. 1.410(a)-3T provides an exception for plan's requiring two years of service as long as particpants are fully vested after such time. Does the additionaly 1,000 hours here with the 1 year of service constitute two years of service?

[J Simmons]

Are you sure that for eligibility that in addition to a year of service the plan requires an EE to then have 1,000 hours too?

Or is it that to earn that year of service, the EE must have 1,000 hours of service during the 12-month measuring period?

Or is it that to be eligible there must be a year of service, and then once eligible and entered to accrue a benefit the employee must have 1,000 hours of service in the current plan year?

As you have described the plan--that both the year of service plus a separate 1,000 hours is required for eligiblity--is something I've not heard of before.

[ERISAnut]

You appear to be confusing the issue. The plan is only requiring "ONE YEAR OF SERVICE".

This term is typically defined as "a 12 month period where the employee completes at least 1000 hours of service".

You can define the year in this manner, or any other (perhaps more liberal) manner. But, you do not want to double count, which is what you appear to be doing.

Once you get this under control, then you can begin to look at certain types of plans (or types of employer contributions) that may provide for more restrictive eligibility (up to 2 years). But, this has nothing to do with 'how you define a year of service'.

Sorry, J Simmons jumped in ahead of me.

[Guest Sieve]

I would bet that the Year of service + 1,000 h/s means, under the plan, a 12-month period in which the employee completes 1,000 h/s. All very legal, meeh.

[ERISAnut]

LOL,

We all beat the hell out of that one. All responded at the same time.

[Guest Sieve]

You know what they say about great minds -- anything they want to!!

What if I told you that I responded because I actually knew the answer (for a change)!! Of course, that never kept me from responding in the past . . .

[J Simmons]

LOL,

We all beat the hell out of that one. All responded at the same time.

And all in 4 minutes from 9:54 to 9:58 AM (my time zone, anyway).

[Guest meeh3704]

First, thanks to everyone who replied.

I am dealing with a Company that would like to implement dual eligibility requirements. The first for elective deferrals requires one year of service (at least 1,000 hours), and the second, for discretionary profit-sharing contributions, requires one year of service plus 1,000 hours. This provision is not in the plan currently, but it is what the company is proposing. They want to know whether requiring the additional 1,000 hrs is the same as requiring two years of service. I suspect it is, which would mean they would have to vest after the two-year period.

any thoughts with citations? I've looked through regulations, PLRs, etcetera.

Again, I appreciate any thoughts on the matter.

[Guest meeh3704]

I apologize if I'm confusing everyone. I'm a little uncertain too. I was assigned this project and told only that the Company would like to require 1 year of service plus 1,000 hours. The direct question posed to me was whether requiring an additional 1,000 hours is equivalent to requiring 2 years of service. It seems to me like it is b/c the code states that a year of service is not less than 1,000 hrs of service. am i correct that completion of at least 1,000 hours must be one year of service?

[Guest Sieve]

If one y/s means 12 months & 1,000 h/s, and then there is an additional eligibility requirement, after the y/s ends, that requries another 1,000 h/s for eligibility, then you have more than a 1 year eligibility provision for the ps, and therefore you would have to fully vest immediately upon entry.

However, if what you mean is that you simply need 1,000 h/s in a subsequent year in order to earn the right to receive an allocation of the ps contribution for that year, then that is OK without the need to fully vest (because that is an allocation requirement, not an eligibility requirement)--but, in that case, be careful of minimum coverage testing requirements (IRC Section 410(b)).

[WDIK]

I interpreted meeh3704's post to mean that the company want's 1 year with 2000 total required hours for profit sharing eligibility. Such an approach would not be allowed.

[Guest Sieve]

meeh3704 --

If WDIK's interpretation is correct--that the client wants 12 months with 2,000 h/s for eligibility--then the eligibility provision is not permitted, and the plan may not include such a provision. It's not an issue of full vesting after 2 years--it's an issue of not being allowed to require more than 1,000 h/s during an eligibility year.

So, there are lots of answers in these posts, depending exactly on what your facts are (because none of us is absolutely certain).

[Guest meeh3704]

Do you have any support for this statement? I there anything in the Code or regulations that explicitly allows this? It seems to me that this is just another layer of eligibility. I think you're stating what the client wants to do, although it was not posed to me correctly. thanks.

"However, if what you mean is that you simply need 1,000 h/s in a subsequent year in order to earn the right to receive an allocation of the ps contribution for that year, then that is OK without the need to fully vest (because that is an allocation requirement, not an eligibility requirement)--but, in that case, be careful of minimum coverage testing requirements (IRC Section 410(b))."

I apologize, again, for the confusion, but I think Sieve may be correct as to what the company is trying to do. The question then is whether the company may require 1 yos for participation, and then require 1,000 hours for the discretionary employer allocation.

[Guest Sieve]

I don't know where the rule is, frankly--it's an old one--but look at Treas. Reg. Section 1.410(b)-6(f)(1)(iii) which clearly contemplates a minimum amount of service to receive an allocation for the year, and -6(f)(1)(v) which contemplates that this minimum amount of service can exceed 500 h/s. Hopefully, someone can come come up with the proper cite.

[J Simmons]

Another citation is Rev Rul 76-250, IRB 1976-2

[K2retire]

Do you have any support for this statement? I there anything in the Code or regulations that explicitly allows this? It seems to me that this is just another layer of eligibility. I think you're stating what the client wants to do, although it was not posed to me correctly. thanks.

"However, if what you mean is that you simply need 1,000 h/s in a subsequent year in order to earn the right to receive an allocation of the ps contribution for that year, then that is OK without the need to fully vest (because that is an allocation requirement, not an eligibility requirement)--but, in that case, be careful of minimum coverage testing requirements (IRC Section 410(b))."

I apologize, again, for the confusion, but I think Sieve may be correct as to what the company is trying to do. The question then is whether the company may require 1 yos for participation, and then require 1,000 hours for the discretionary employer allocation.

Start by looking in most any adoption agreement in the "allocation conditions" section. It will describe the requirement to have 1000 hours of service to be eligible for an employer contribution in a year. Notice that this is a completely separate part of the document and a completely separate issue from eligibility.

In simple terms what these provisions are trying to tell you is that once you've met eligibility, you're in the plan. But after you're in the plan you may have to meet additional conditions each year to be eligible to receive an employer contribution for that year.

[Guest Sieve]

But, again, be careful of potentially failing Sectin 410(b) testing. Excluding those individuals from an allocation of the PS contribution in those years is not a free ride (as pointed out in the Rev. Rul. John cited and as discussed in the 410(b) regs).

[Guest meeh3704]

thanks for your help. Rev Rule 76-250 is exactly what I needed.

[Guest meeh3704]

TD 8363, 1991-2 CB 287, indicates that it supercedes, in part, Revenue Ruling 76-250. TD 8363 provides that an employee who has an accrued benefit under a defined benefit plan but does not recieve an accrual for the plan year because the employee worked less than the 1,000 hour minimum service requirement under the plan in that year is not benefiting under the plan for the plan year.

I take this to mean that the participant is not benefiting for purposes of testing requirements under IRC 410(b), but I assume this does not prevent in any way an employer from imposing the 1,000 hour requirement for allocations.

[J Simmons]

Sometimes the 1,000 hours in the current plan year as an accrual requirement must be relaxed to pick up a sufficient number of employees to pass 410(b) minimum coverage testing. So there is a way that 410(b) can prevent the imposition of the 1,000 hours requirement.

[Guest Sieve]

meeh3704 --

In case this plan is a db, be aware that you can accrue portions of a year of service so that a full year of service is not accrued unless the participant completes 2,000 h/s in the plan year. The accruals must be at least pro-rata, starting with 1/2 y/s at 1,000 h/s, so normally a full year accrues with less than 2,000 h/s. See DOL Reg. Section 2530.204-2.