410(b) - Equivalency

[Andy the Actuary]

A plan uses the 190 hours/month equivalency for crediting service.

The 410(b) regs. prescribe the circumstance whereby certain terminating employees may be treated as excludable, one of which is the employee must not be credited with more than 500 hours of service during the year. 1.410(b)-6(f)(2) indicates "If one of the equivalencies . . . is used for crediting service under the Plan, the 500-hour requirement must be adjusted accordingly."

Can anyone shed light on what "adjusted accordingly" means?

[Guest Sieve]

I assume--but do not know for sure--that adjusting an equivalency "accordingly" means to take 1/2 of the number of equivalency h/s that an individual would receive for the full year, i.e. 1150 h/s (190X6) for a monthly (190 h/s/mo.) equivalency or 1125 h/s (45X25) for a weekly (45 h/s/wk) equivalency (since 2000 = 40X50).

[Andy the Actuary]

I assume--but do not know for sure--that adjusting an equivalency "accordingly" means to take 1/2 of the number of equivalency h/s that an individual would receive for the full year, i.e. 1150 h/s (190X6) for a monthly (190 h/s/mo.) equivalency or 1125 h/s (45X25) for a weekly (45 h/s/wk) equivalency (since 2000 = 40X50).

But, when using the hours equivalency within the Plan, a break-in-service in unilaterally defined as 500 hours, so I wonder about the inconsistentcy. The normal break in service is 501 hours -- about 1/4 of a year. Using your suggestion, 1/4 x (190 x 12) = 570 hours or 3 months.

Thus, for example, using the equivalency and a calendar year, we would under the proposed determine an employee as excludable if he terminated before April 1. Without the adjustment, he would have to terminate before March 1 to avoid being credited with more than 500 hours. I was planning to use the April 1 cutoff anyway as it is reasonably consistent with the note under (f)(v) regarding the elapsed time method.

Thanks for your help.