Crediting Service

[IRA]

Client had a DB plan with 5-year cliff vesting. A participant terminated in 2012 and took a distribution. The client froze the DB Plan effective 12/31/13. It started a 401(k) plan with a match on January 1, 2014. The participant who terminated in 2012 was rehired in 2014.

Does the client have to credit the participant with eligibility service under the 401(k) plan on the date of rehire? I think the answer is yes for two and 1/2 reasons.

First, no 5-year break and thus service not lost. Second, the participant was not a participant in the 401(k) plan, and the rule of parity only applies to participants. Since the terminated individual was not a participant in the 401(k) plan, the rule of parity does not apply for purposes of crediting service under the 401(k) plan. The second and one-half reason is that even if you consider the DB participation as being a participant for purposes of applying the rule of parity to the 401(k) plan, the participant was vested and thus the rule of parity does not apply.

Change the facts a little. What if the employee did not participate in the DB plan and terminated in 2008 after being with the company for over five years and working over 1,000 hours in each of those years. In that case the individual would not have been a participant. Does that mean the years credited before the 401(k) plan have to be counted for eligibility puropses even though the employee was gone for more than 5 years?