Years of Service for allocation purposes

[Gudgergirl]

Profit-sharing plan has cross tested allocation formula in which groups consist of:

HCE

NHCE with less than 5 years of service

NHCE with 5-14 years of service

NHCE with 15-24 years of service

NHCE with more than 24 years of service.

One participant with 20 years of service terminated employment, incurred a break in service and was reemployed.

Employer insists she be put in the allocation group of NHCE with less than 5 years of service.

Has anyone ever heard of ingnoring years of service for the purpose of putting an employee in an allocation group?

The plan defines years of service for eligibility, allocation of benefits and vesting but does not address this particular situation.

Thanks for any insights.

[Guest Offender]

The Federal break-in-service rules are only required to be followed for determining eligibility and vesting (the extent to which they apply). The definition of years of service for purposes of an allocation is that defined by the Plan. Therefore, if the document does not explicitly reference how breaks in service are treated for purposes of accruing Years of Service for allocation purposes, it is up to the interpretation of the Plan Administrator.

Whatever the interpretation, it can be challenged by the participant as discriminatory, arbitrary and capricious.

If the document makes no attempt to distinguish any difference between Years of Service for purposes of eligibility and vesting vs. those for allocations, I personally would not feel overly confident in supporting a different treatment when it comes to the impact of breaks-in-service, without express language in the document.

[Bird]

If the document makes no attempt to distinguish any difference between Years of Service for purposes of eligibility and vesting vs. those for allocations, I personally would not feel overly confident in supporting a different treatment when it comes to the impact of breaks-in-service, without express language in the document.

I agree. In fact, if you don't use a definition of "years of service" from the document and it is up to the administrator's discretion, then I don't think you have a definitely determinable formula.