IRS audit and eligibility definition

[pmacduff]

Does anyone else have clients who use an eligibility of "6 consecutive months" of service? We have a client under audit who has this eligibility. The Plan allows anyone who works at any time during a month (i.e. even 1 hour) for 6 consecutive months to enter the Plan. The IRS auditor doesn't like the wording of "6 consecutive months". He is claiming that if an employee worked 2 weeks in January and then 1 week in June, those are "consecutive" months for that employee and would count as 2 months toward the 6 months. What do others think?

[Tom Poje]

out of curiosity, does the doc also contain language 'if the person works 1000 hours in a 12 month period' they are eligibile as well?

otherwise you have a problem for someone who works, say 800 hours Jan - May (5 consecutive months)

and 800 hours August - Nov (5 consecutive months)

yet has worked 1000 hours in a 12 month period.

I also recall, for instance, if the plan had a 2 year eligibility (100% vesting) that the years can't be required to be consecutive, so maybe that is the point the auditor is making (though I'm not sure if that argument is applicable).

[QDROphile]

The auditor is technically correct, but I am not sure about the specific statement you attribute to the auditor. The "six consecutive months" does not assure compliance with eligibility rules. You might be able work with the concept and pass 410(b) with more complex provisions, but the IRS might still be concerned about 410(a). Section 410(a) has been more of a hot button lately. I suspect the auditor is only on to 410(b) at this point.

[ETA Consulting LLC]

It "may" be a moot point when you incorporate the Service Spanning Rules for Elapsed Time. I'd read the document closely to see if these apply. Any period of "less than 12 months" between service dates would be spanned as if the employee never left. When you leave for 12 consecutive months (e.g. break in service), then you begin tracking from the date of re-employment.

Good Luck!

[pmacduff]

Well ERISAToolkit may have hit the nail on the head. The auditor said he wanted to talk to the client about elapsed time. I'll let you know the outcome when I find out.