Initial eligibility requirements less than 1 YOS

[erisaman2000]

Takeover client's 401(k) plan eligibility requirement is:

"Eligibiiitv: All employees other than excluded classes shall become a participant with respect to employer contributions on the entry date on which the participant first meets the following requirements:

(I) Attains age twenty-one (21) and

(2) Completes 500 hours of service."

The 1000 hour year of service rule applies after the first year.

Entry dates are semiannual.

Plan has been administered as requiring 500 hours of service AND 12 months of employment, and then entering the plan on the next semiannual entry date.

(It seems to me that, in the past, anyone who completed 500 hours of service at any time within the first 12 months of employments should have entered the plan on the next entry date, and not until the first entry date after 12 months of employment, so there may be corrective contributions to make.)

At any rate, we are now preparing the PPA restatement. Client wants to have a "500 hour and 12 months of employment" rule to permit part time employees into the plan, as long as they work over 500 hours annually. Client does not want to let employees with less than 500 hours per year (there are some) into the plan.

We can elect eligiblity requirements in our volume submitter document that would provide:

"Any Eligible Employee who has completed 500 Hours of Service within 12 consecutive months from the initial date of employment and has attained age 21 shall be eligible to participate hereunder as of the date such Employee has satisfied such requirements."

The question is regarding the phrase "as of the date such Employee has satisfied such requirements."

Similar language appreas in other prototype and volume submitter documents that I checked. I thought that, unless a plan used the statutory "year of service" definition, that any lesser hours requirement for initial eligibility had to provide for eligibility "as of the date the requirements are satisfied." So, in our document, as in the existing EGTRRA document, if a full-time employee meets the 500 hours requirement after 3 months, he would enter the plan on the next entry date, NOT after 12 months.

An associate has recommended using the "other" option in the volume submitter document to say:

"Any Eligible Employee who has completed 12 CONSECUTIVE MONTHS OF SERVICE in which he has at least 500 Hours of Service and has attained age 21 shall be eligible to participate hereunder as of the date such Employee has satisfied such requirements."

That would appear to require both 500 hours of service AND 12 months of employment, but I am still thinking that the use of both hours and months (and NOT using the statuory "year of service" definition) would still require the plan to count the hours and bring employees into the plan on the next entry date after the 500 hours are met.

Any thoughts would be appreciated

[K2retire]

If you're requiring 500 hours and 12 months of service, how could anyone enter before completing 12 months of service?

[erisaman2000]

That's the issue here. The current document states that a participant becomes eligible upon completion of 500 hours. The PPA restatement we prepared says "500 Hours of Service within 12 consecutive months from the initial date of employment...shall be eligible to participate hereunder as of the date such Employee has satisfied such requirements" - so again, upon the completion of the 500 hours.

The client has always administered the plan (and always intended) to require BOTH 500 hours of service AND 12 months of employment; so yes, right now, as administered, no one enters the plan before 12 months of employment. (BTW, both plan documents contain the year-of-service safe harbor language to admit any employee who has a year of service after the initial computation year.)

What I am unsure of is whether I can draft the document to reflect the way the plan is being administered (and the way the client desires). Can a plan can require hours AND 12 months of service without using the "year of service" definition?

I thought that if the plan used a period other than 12 months, eligibility either had to be hours alone (as language in both VS documents essentially provides); OR the plan had to use elapsed time (which will permit employees into who complete less than 500 hours in the 12 months)....

[K2retire]

"500 Hours of Service within 12 consecutive months from the initial date of employment...shall be eligible to participate hereunder as of the date such Employee has satisfied such requirements"

You're ignoring the Italicized phrase. In my opinion, that means you have not met the requirements until you've worked 12 consecutive months.

[david rigby]

"500 Hours of Service within 12 consecutive months from the initial date of employment...shall be eligible to participate hereunder as of the date such Employee has satisfied such requirements"

You're ignoring the Italicized phrase. In my opinion, that means you have not met the requirements until you've worked 12 consecutive months.

Not so sure about that. "within 12 months" is not the same as "completion of 12 months". Suppose EE is hired 06/15/14 (full-time) and entry dates are June 30 and December 31. The original post indicates the EE should enter on 12/31/14, doesn't it?

BTW, check prior documents. It's possible this is a drafting error (which might explain your problem but not solve it).

[erisaman2000]

I have communicated with the document vendor, and have been told that the intent of the language, as submitted to IRS originally, is that the measuring date for the 500 hours is the end of the 12-month period.

Counsel also stated that, if we used a "500-hours AND completion of 12 months of employment" requirement, that would be a mixing of both hours of service and elapsed time definitions, and that the employee would be afforded an "earlier of" eligibility, which is not what we want.

After consultation with the employer, we discovered that the 500 hours was being applied, not just to the initial 12 months of employment (with a reversion in subsequent years to the standard 1000-hour Year of Service definition), but was being applied each and every year to employees. As a result, we are going to make an end run around the initial question about the language in the eligibility section by changing the Year of Service definition for eligibility purposes to 12 months with 500 hours. The eligibility section will then require (1)age 21 and (2) completion of a Year of Service.

Would love to kick around the whole 500 hours stuff a lot more, but my employer seems to have his heart set on having me accumulate billable hours....

Thanks.