Elapsed time eligibility

[Guest Amy Marie]

401(k) plan has eligibility requirements of age 21 with 3 consecutive months of service (shifts to the plan year if not met); monthly entry dates. The Hours of Service method is used to credit service for eligibility. Participant A is over 21, hired on 1/5/2012 and terminated on 3/20/2012 (worked 300 hours). "A" is rehired on 10/25/2013. The plan is amended effective 1/1/2013 to use the elapsed time method of crediting service for eligibility purposes. When will "A" be eligible for the plan?

I've been getting conflicting responses. Please let me know if additional information is required.

Thanks!

[ETA Consulting LLC]

A year of service for eligibility may be defined as 1000 hours during a 12 month period. When you require "less than" a year of service for eligibility, then how you define that year of service is not relevant. Hence, your requirement is 3 months of elapsed time. The 'employee' worked 2 months and severed employment. Now, had that employee came back to work with 12 months of that date of severance (3/20/2012), then it would've been as if he never left. His service would have 'spanned' across the period of severance. Now, the fact that he did leave, his service will pick back up on his date of rehire (10/25/2013). So, when we works through 11/10/2013, that should complete the 31 days for the 3rd month (October-2013) needed for eligibility. He should, then, enter the plan on 12/1/2013.

Keep in mind that you do not require a year of service, so how the year is defined is not relevant. Since you are requiring only 3 months of elapsed time, any severance beyond a year would start the clock back up "at 75 days" on the date the employee is rehired.

Good Luck!

[Tom Poje]

these are the IRS guidelines on eligibility and when one should particiapte.

There is a whole section on elapsed time that might be helpful

min partic standards publication 6388.pdf

[Guest Amy Marie]

Thanks for taking the time to respond. I think I may still be confused or perhaps I didn't explain the situation clearly.

If I understand correctly, the employee wouldn't have to work 3 consecutive months once the plan changed to elapsed time? I was under the impression that since the employee did not meet the initial eligibility requirement of 3 consecutive months starting on their original date of hire, that they would have to complete a year of service to enter the plan. The service requirement for eligibility reads: 3 (not to exceed 12) consecutive months of employment from the Eligible Employee's employment commencement date. If an Employee does not complete the stated number of months, the Employee is subject to the 1 Year of Service requirement.

I had another source tell me that the employee would enter the plan on 11/1/2014 saying that the 3 consecutive months was not met, therefore a year of service needs to be completed. Since the employee is not credited with any prior service while employed during 2012, that prior service is ignored and the year of service begins on the date of rehire, 10/25/2013. If the employee is employed on 10/24/2014 (regardless of hours or continuous employment), then they would enter the plan on 11/1/2014.

[BG5150]

Does the plan say 3 months? Or 3 consecutive months?

(And would the service-spanning rules come into play in either case?)

[Guest Amy Marie]

The plan says 3 consecutive months.

[ETA Consulting LLC]

I didn't answer with "consecutive" in mind. The service spanning rules would apply for any service where there has been a severance of less than 12 months. However, if a severance is 12 months or longer and your eligibility period is 3 consecutive months, then you must start the clock back over after working 2 months and terminating. "IF" you work a Year of Service (as defined, 1000 hours during 12 month period), then you are in.

'Consecutive' does make a difference, but only when there is a severance of greater than 12 months. That's my interpretation.

I, now, have an appreciation of the confusion you faced

Good Luck!

[rcline46]

Check you document for definiton of a month of service. Many documents grant a full month for any time worked in that month. If that is what your document reads, then the employee did complete 3 consecutive months of service.

[Guest Amy Marie]

Unfortunately, the plan does not define a month of service. Even if it did, the plan used the hours of service method in 2012 and changed to elapsed time effective 1/1/2013. I've discussed this situation with numerous people and cannot seem to wrap my mind around how this should be handled. Maybe I should approach this a different way: what is this employee's next eligibility period? Is it 1/1/2013 - 12/31/2013 or is it 10/25/2013 - 10/24/2014?

[BG5150]

I just noticed there was a greater than 1 year break in service here (March '12 to October '13). I say you restart the clock, as the service-spanning rule is not in effect.

If employment continues, the employee will become a participant on the entry date following January 25, 2014.

The "year of service" requirement is there to say: if you don't work the requisite time, but work more than 1,000 hours you are in. It doesn't have anything to do with: Poor guy. You didn't work three months the first time around, so now you have to work 1,000 hours...

[ETA Consulting LLC]

I'm with BG5150 on this one.

Good Luck!

[Guest Amy Marie]

I just want to make sure I understand this correctly. Since A did not meet the 3 month requirement and had a break in service that exceeded 12 months, he is treated as a new employee on the date of rehire and would only have to work 3 consecutive months (be employed on 1/25/2014) to enter the plan on the next entry date. Is this correct? Does the fact that the plan went from hours of service (during 2012) to elapsed time (effective 1/1/2013) make any difference?

[pmacduff]

we had an IRS audit on a plan which was 6 "consecutive" months of service. With less than 1 YOS you have to use elapsed time so the IRS opined that the word "consecutive" is basically meaningless and the service spanning rules applied. Actually only ended up being a few employees that were missed for eligibility (rehires of course.) Corrected under SCP.

That being said, from all of the samples I went through with the agent I would say that since this employee did not return within 12 months from initial DOH, the service spanning rules do not apply as BG5150 mentioned. SO....the participant starts over, needs to work for 3 months and would enter on the next entry date as defined in the doc.

[ESOP Guy]

Related:  I have a plan that says you have to work 6 consecutive months.  You then enter the following 1/1 or 7/1. 

The person is at least 18 which is also required.

1st DOH is:  9/2/2015

1st DOT is:  10/2/2015

2nd DOH is:  5/9/2016

I am thinking because of the service spanning rules this person would enter 7/1/2016. 

Am I getting myself tied in knots and not thinking it through correctly? 

 

It makes a difference as this plan uses compensation from date of hire. 

Please give some thoughts. 

 

Thanks

[RatherBeGolfing]

4 hours ago, ESOP Guy said:

Related:  I have a plan that says you have to work 6 consecutive months.  You then enter the following 1/1 or 7/1. 

The person is at least 18 which is also required.

1st DOH is:  9/2/2015

1st DOT is:  10/2/2015

2nd DOH is:  5/9/2016

I am thinking because of the service spanning rules this person would enter 7/1/2016. 

Am I getting myself tied in knots and not thinking it through correctly? 

 

It makes a difference as this plan uses compensation from date of hire. 

Please give some thoughts. 

 

Thanks

I agree, employee would have the 6 required months on the rehire date because of service spanning rules, and the next entry date is 7/1/16.