Post severance comp & hours

[Craig Schiller]

Plan's definition of post-severance compensation counts compensation paid for unused vacation paid after termination of employment. Assume ee' terminated on June 10th and worked 950 hours. She is paid for 60 hours of unused vacation. Does she have 1,000 hours for vesting that year?

(I think hours stop at termination of employment even if compensation does not. But I don't know - just my interpretation, What do others think or know?

Thanks for any opinions (or answers).

Craig Schiller

[Kevin C]

What does the plan say? Your document will define Hours of Service.

[QDROphile]

A little thought exercise: What if the employer allowed the employee to start vacation on June 10 and terminate at the end of the vacation? Same compensation, although I imagine that the vacation would have been paid as regular payroll while payment for accrued but unused vacation may have been a special check.

[Kevin C]

The Hour of Service definition in the plan should mirror the regs.

2530.200b-2(a)

(2)

An hour of service is each hour for which an employee is paid, or entitled to payment, by the employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. Notwithstanding the preceding sentence,

(i)

No more than 501 hours of service are required to be credited under this paragraph (a)(2) to an employee on account of any single continuous period during which the employee performs no duties (whether or not such period occurs in a single computation period);

(ii)

An hour for which an employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed is not required to be credited to the employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable workmen's compensation, or unemployment compensation or disability insurance laws; and

(iii)

Hours of service are not required to be credited for a payment which solely reimburses an employee for medical or medically related expenses incurred by the employee.

For purposes of this paragraph (a)(2), a payment shall be deemed to be made by or due from an employer regardless of whether such payment is made by or due from the employer directly, or indirectly through, among others, a trust fund, or insurer, to which the employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer or other entity are for the benefit of particular employees or are on behalf of a group of employees in the aggregate.

[Craig Schiller]

Thanks for pointing out the definition of Hours of Service. I thought that hours wouldn't count after termination.

This has an odd way of working. For Hours of Service, the hours count, even if after termination of employment, with the limitation being not more than 500 hours for any such continuous period. As for the pay itself counting, that depends on whether the plan document has the optional provision in it that counts such comp as post-severance comp or not. Another words, even though it isn't required to count hours for vacation as post-severance comp, it is required to count those hours, with the 500 hour maximum cap, for vesting.

Craig S.

[Craig Schiller]

As I read in the ERISA Outline, I found some things that fine tune how hours are applied for vacation and similar pay after termination of employment. It relates to the separate ERISA rule that hours worked are not double counted.

Here are 2 examples to illustrate this. It assumed the employee terminated on June 15, 2013.

1): Employee A is paid for 2 weeks of vacation he didn't take in 2012. These hours do not count due to the fact that they cover the same hours the person was paid for in 2012.

2): Employee B is paid for 2 weeks of vacation he or she earned in 2013. Here the hours would count.

I think example 2 has more than one interpretation though. If the employee could have gone on vacation in 2013 but hadn't as of June 15th, is the payment actually payment for the fact that he worked through weeks he could have taken, so would not need to be counted due to the rule prohibiting double pro-ration.

I think counting the Hours is the safe thing and best course of action. But there is a contradiction to applying the hours this way. It means the company is paying the person for 2 weeks starting June 16 to June 30th. That would make the person still a legal employee until June 30th if the person were on vacation, so subject to all the rights an active employee has. OTOH, I think the person is legally no longer an employee if typically, June 15th is the last day.