Eligibility of Rehires

[7806akp]

Plan provides that an employee shall be eligible to participate on the 6-month anniversary of the employment commencement date or the reemployment commencement date, as applicable, provided he has completed one hour of service and is employed on such 6-month anniversary date. I interpret this to mean that if a person quits before the 6-month anniversary date and is rehired thereafter, the 6-month period begins to run again, even though the individual previously performed the one hour of service that was required to become eligible. I am assuming that the intent was to use the hours of service method of counting service (with a 6-month eligibility computation period and one hour of service requirement). Is this allowed under the law? Can a rehired employee be required to start over earning 6-months of service when he/she already earned the required one hour of service during his previous period of employment? My general understanding was that a rehired employee who had performed the hours of service required (one hour, in this case) prior to termination of employment would become a participant on the rehire date (assuming the rehire date falls after the 6-month anniversary) because the employee does not have to be employed at the end of the six months to get credit for the hours worked during such 6-month period. Reg. 2530.200b-1(b) provides in relevant part

In general, employment at the beginning or the end of an appliable computation period or on any particular date during the computation period is not determinative of whether the employee is credited with a year of service...for the computation period. Rather, these determinations generally must be made solely with reference to the number of hours...which are credited to the employee during the applicable computation period.

However, Reg. 2530.200b-1(b) also provides the following:

It should be noted, however, that in certain circumstances, a plan may provide that certain consequences follow from an employee's failure to be employed on a particular date. For example, under section 202(a)(4) of the Act and secton 410(a)(4) of the Code, a plan may provide that an individual otherwise entitled to commence participation in the plan on a specified date does not commence participation on that date if he or she was separated from the service before that date.

Does this provision of the Reg. mean that the plan can start over counting the 6 months of service for a rehire because the plan provides that the individual must be employed on the 6-month anniversary date in order to become eligible to participate?

Alternatively, perhaps in this case the plan document can be more restrictive about counting hours of service prior to a termination of employment since the plan provides more liberal eligibility provisions than the mimimum service requirements (i.e., only 1 hour of service in 6 months rather than 1000 hours of service in 12 months). Thoughts?

[Guest Sieve]

Does the plan have a provision that explains how to treat an individual who is not an employee at his/her entry date (hence, not a particiapnt when employment terminated) but is later rehired? Clearly you should check there 1st (in case you already haven't).

Your answer might depend on whether eligibility was one h/s and the entry date was 6 months later, or if eligibility was one h/s and 6 months of service. Here, for example, are Basic Plan Document provisions that would be applicable in your situation (if you were using this particular prototype plan (Corbel)):

"(b)

Rehired Eligible Employee who satisfied eligibility.

If any Eligible Employee had satisfied the Plan's eligibility requirements but, due to a severance of employment, did not become a Participant, then such Eligible Employee shall become a Participant as of the later of (1) the entry date on which he or she would have entered the Plan had there been no severance of employment, or (2) the date of his or her re-employment. Notwithstanding the preceding, if the rehired Eligible Employee's prior service is disregarded pursuant to Section 3.5(d) below [rule of parity], then the rehired Eligible Employee shall be treated as a new hire."

"©

Rehired Eligible Employee who had not satisfied eligibility.

If any Eligible Employee who had not satisfied the Plan's eligibility requirements is rehired after severance from employment, then such Eligible Employee shall become a Participant in the Plan in accordance with the eligibility requirements set forth in the Adoption Agreement and the Plan. However, in applying any shift in an eligibility computation period, the Eligible Employee is not treated as a new hire unless prior service is disregarded in accordance with Section 3.5(d) below.""(d)

Reemployed after 1-Year Break in Service ("rule of parity" provisions).

If any Employee is reemployed after a 1-Year Break in Service has occurred, Years of Service (or Periods of Service if the Elapsed Time method is being used) shall include Years of Service (or Periods of Service if the Elapsed Time method is being used) prior to the 1-Year Break in Service subject to the rules set forth below. . . ."

[7806akp]

Does the plan have a provision that explains how to treat an individual who is not an employee at his/her entry date (hence, not a particiapnt when employment terminated) but is later rehired? Clearly you should check there 1st (in case you already haven't).

What I entered above was the only language in the plan regarding eligibility. I believe the provision was intended to impose a one h/s + 6 months service requirement (rather than a 6-month entry date provision).

[Guest Sieve]

Are you working with a prototype (check-the-box) plan?

[7806akp]

Are you working with a prototype (check-the-box) plan?

Yes, but there is an overriding amendment that overrides any plan provision that is inconsistent with the above eligibility language, so it is completely unclear which of the base plan doc provisions now apply. The plan is an individually designed plan with a prototype form of document.

[Guest Sieve]

It would be very unusual, I think, for the Basic Plan Document (boiler plate provisions) of a prototype plan or of a volume submitter prototype style not to have some language describing how to treat re-hires. It's also impossible for us (or for me, at least), at this distance, to answer your question, because I believe this is a document issue.

For example, if the plan uses elapsed time for eligibility--and one h/s with a 6-month time period for eligibility sounds like elapsed time to me--then all service generally will continue to count, even if it less than 6 months, when the employee is re-hired. If the time away from the job is less than a year, then even that period of time may count towards the 6-month eligibility requirement. That would mean that your rehired employee, even if terminated before passing the 6-month mark, may be a participant at the time of rehire.

If, in fact, there is no re-hire or other applicable language in your document, then it is the job of the Administrator (the employer?) somehow to interpret the Plan's provisions in a consistent and reasonable fashion (although I'm sure the cases use different language).