Eligibility service less than statutory minimum

[Guest Dave Peckham]

I'm finding it hard to believe that I haven't had to deal with this issue before, but here goes.

Eligibility requirements in a profit sharing plan = Age 21 and completion of 6 consecutive Months of Service during which the Employee completes at least 500 Hours of Service, or completion of One Year of Service, if earlier.

Entry Dates = 1st day of month following completion of eligibility requirements

John Doe is age 22 and completes 450 Hours of Service in his first 6 Months of Employment.

The plan's subsequent Eligibility Computation Period is the Plan Year.

So, now we look at the overlapping Plan Year for John Doe.

Question: does it matter how many hours John works in the first 6 months of his SECOND eligibility computation period? Or do we just test for 1,000 hours worked in the full 12 months of the second eligibility computation period?

I'm amazed that I can't find an answer in Sal Tripodi's ERISA Outline Book. Maybe I'm just blind?

[ETA Consulting LLC]

You won't find the answer in the EOB as the approach to answering your questions has been outlined.

Based on your description:

1) Plan Requires Completion of 500 within 1st 6 months of employment

2) Should employee fail to meet that requirement in the 1st 6 months, then the employee must complete 1 year of service (e.g. 1000 hours during 12 months)

2a) Notice, there is a earlier of provision (6 months with 500 hours or 12 months with 1000 hours) which is standard. Now, IF the plan is actually written to provide unlimited 6 month periods for 500 hours, THEN ignore "2" above and you'd move to a 2nd 6th months of employment to determine if 500 hours are worked.

2b) The 2nd "Eligibility Computation Period" in your analysis is for the 1000 hours during a 12 month period; and not the 6 month eligibility determination. You "MUST" provide a full year beginning on the date of employement and ending on the date before the 1 year anniversary for the 12 month/1000 hour requirement. This is the anniversary year. However, in subsequent years, you may 'switch to the plan year' for purposes of measuring 1000 hours during 12 months. This has nothing to do with your 6 month 500 hours requirements.

3)With is understanding, since the individual failed to work 500 hours during his first 6 months, then he MUST work 1000 hours during his first year of employment. Should he fail to work 550 hours during his second 6 months, then he'd have to work 1000 hours during the plan year containing the 1st anniversary of employment.

4) Notice that I am assuming the plan is written to give the employee ONLY one 6-month opportunity to work 500 hours before resorting to the 1 year requirement. You should verify whether this is or isn't the case. Now, read this 5 or 6 times and it should begin to sink in

Good Luck!

[Guest Dave Peckham]

Dear ERISAtoolkit,

The employee in question has NEVER worked 1,000 hours in ANY 12-month eligibility computation period, but he HAS worked over 500 hours in several 6-month periods since his date of hire; just not the FIRST 6-month period. (This happens because the employee is part-time and is called in for extra hours during tax season, January through April, but then works hardly at all July through December.)

Have you ever seen a plan document written to specify that there is "ONLY one 6-month opportunity to work 500 hours before resorting to the 1 year requirement?" Conversely, have you ever seen a plan document written to specify an UNLIMITED number of 6-month opportunities to work 500 hours?

If you have examples of plan language with either specification, please cut and paste, because I have never seen such plan language.

[Bird]

The language in our (Ft William) Vol Sub plans is as follows. Note that option iii says "...Hours of Service in a [my emphasis] _____month period..." I looked in the Basic Plan Document and didn't see anything to indicate that means the first ___ months only, so I think we'd have to look at every 6 month period (Jan-Jun, Feb-Jul, etc.). Whatever your document says, I think you have to follow it literally.

11a. Minimum service requirement for Elective Deferrals/Voluntary Contributions:

i. [ ] None

ii. [ ] Completion of One Year of Eligibility Service (See B.11c for hours of service required for a year of service if the Plan does not use the Elapsed Time method in B.11b)

iii. [ ] Completion of __________ Hours of Service (not more than 1,000) in a _____ month period (Not to exceed 12.)

iv. [ ] Completion of __________ Hours of Service (not to exceed 1,000) within a twelve month period.

v. [ ] Completion of __________ months of service (not to exceed 12 months--elapsed time only).

NOTE: If B.11a.iii - B.11a.v is selected, the service requirement under B.11a shall be deemed met no later than the end of an Eligibility Computation Period during which the Eligible Employee completes 1,000 Hours of Service; provided, that the individual is an Eligible Employee on the applicable entry date. Service taken into account for purposes of B.11a shall be determined under the terms and conditions as is specified for determining a Year of Eligibility Service.

NOTE: If B.11a.iv is selected, the service requirement under B.11a shall be deemed met at the time the specified number of Hours of Service are completed.

[ETA Consulting LLC]

That would be the difference between "a" and "any". I look at the language to mean successive periods until an actual overlap is written into the terms of the document (i.e. switch to plan year). Until that is done, the periods would be successive; not rolling. If it is rolling, then you have 365 distinct computation periods in a single year; each 6 months in length beginning on each day of the year.

Good Luck!

[Guest Dave Peckham]

So, obviously, we have some differing opinions, even when presented with specific plan language. Bird, just like you, I looked for guidance in my client's plan boilerplate (ASCi documents) and found none. There must be other consultants out there who have struggled with how to interpret plan language which clearly has the potential to be ambiguous.

Suppose I had the Ft. William document, and suppose I took ERISAtoolkit's position that I should test for successive 6-month periods. An advantage of taking this position is that it would be an administrative nightmare to have to test rolling 6-month periods beginning with every day of the year.

No problem testing the second 6 months of employment, ending with the 1-year anniversary of employment.

But what about the third 6-month period? In the absence of conflicting language (and it doesn't appear that we would find any conflicting language) I would think it reasonable to switch to the overlapping plan year and test the first 6 months of that plan year (i.e. the first 6 months of the second eligibility computation period). Then the 4th 6-month period would be the last 6 months of that plan year.

I wonder what the drafters of prototype or volume submitter language would have to say about this. I can't believe that this issue hasn't posed problems and therefore been addressed before.

[Belgarath]

The Sungard/Relius document seems a bit clearer on this.Emphasis is mine. The 6-month period would seem to be only the initial 6-month period, thereafter, the 1-year requirement. As we are currently looking at switching to FT William, I'm glad this came up so I can ask them about it.

(not to exceed 1,000) Hours of Service within (not to exceed 12) consecutive months from the Eligible Employee's employment commencement date. If an Employee does not complete the stated Hours of Service during the specified time period, the Employee is subject to the 1 Year of Service requirement in f. above.

[Bird]

FWIW, my interpretation of my document would be to test rolling 6 month periods each month. i.e. "month" means "calendar month" and not 30 or 31 days (or 28 or 29 days). I don't think it's too common to have an employee right on the edge like that, plus a non-12 month eligibility period, so it doesn't bother me too much that it's not nailed down better.

[BG5150]

Have you asked the document provider their take on it?

[Guest KristenE]

The language in our (Ft William) Vol Sub plans is as follows. Note that option iii says "...Hours of Service in a [my emphasis] _____month period..." I looked in the Basic Plan Document and didn't see anything to indicate that means the first ___ months only, so I think we'd have to look at every 6 month period (Jan-Jun, Feb-Jul, etc.). Whatever your document says, I think you have to follow it literally.

11a. Minimum service requirement for Elective Deferrals/Voluntary Contributions:

i. [ ] None

ii. [ ] Completion of One Year of Eligibility Service (See B.11c for hours of service required for a year of service if the Plan does not use the Elapsed Time method in B.11b)

iii. [ ] Completion of __________ Hours of Service (not more than 1,000) in a _____ month period (Not to exceed 12.)

iv. [ ] Completion of __________ Hours of Service (not to exceed 1,000) within a twelve month period.

v. [ ] Completion of __________ months of service (not to exceed 12 months--elapsed time only).

NOTE: If B.11a.iii - B.11a.v is selected, the service requirement under B.11a shall be deemed met no later than the end of an Eligibility Computation Period during which the Eligible Employee completes 1,000 Hours of Service; provided, that the individual is an Eligible Employee on the applicable entry date. Service taken into account for purposes of B.11a shall be determined under the terms and conditions as is specified for determining a Year of Eligibility Service.

NOTE: If B.11a.iv is selected, the service requirement under B.11a shall be deemed met at the time the specified number of Hours of Service are completed.

We have the FT Williams Submitter Plan also, and we asked this exact question of them. They said that they interpret it to mean that you have to look at every six month period to determine if eligibility it met. So, you look at monts 1 - 6, then months 2-7 and so on.