Entry date - rehired employee

[mrslappywhite]

Good evening,

I could use some help in determining the entry date for an employee who, on two occasions, worked a short period before terminating, and was ultimately hired full-time after his second termination. He never met the service requirement prior to being terminated on either occasion, but currently has satisfied it.

The potential issue is, the plan sponsor allowed the employee to participate on the entry date following his satisfaction of the service requirements following his most recent hire date, but I am of the opinion that he should not have been allowed to enter the plan until the beginning of the most recent plan year.

Plan specs are as follows:

Plan Year is 11/1 - 10/31

Plan eligibility is 1 YOS/Age 21 with monthly entry dates

Actual hours counted (1000)

No BIS rules apply

ECP shifts to plan year after initial ECP ends

Paraphrasing & summarizing plan's master document provision regarding rehired Eligible Employee who failed to satisfy eligibility requirements: for purposes of applying any shift in ECP, employee's prior service is taken into account and employee is NOT treated as a new hire (emphasis mine).

Employee data is as follows:

Birth date: 6/27/90

Initial Hire date: 6/28/10

Initial Termination date: 8/25/10

1st Rehire date: 5/11/13

2nd Termination date: 8/16/13

2nd Rehire date: 5/12/14

Plan sponsor allowed EE to begin participation after 6/1/15

Hours worked during ECPs (using my understanding of plan document):

6/28/10 - 6/27/11 - 246

11/1/10 - 10/31/11 - 0

11/1/11 - 10/31/12 - 0

11/1/12 - 10/31/13 - 527

11/1/13 - 10/31/14 - 960

11/1/14 - 10/31/15 - 2080

The plan sponsor, I believe, began a new ECP as of 5/12/14, and has credited the employee with a year of service as of 5/11/15, allowing him to participate as of 6/1/15. I believe that, since there are no BIS rules in effect, and the plan document does not seem to allow for "resetting" the ECP to his latest rehire date, that he should not receive credit for a YOS until 10/31/15 and he should not be allowed to participate until 11/1/15. (Our recordkeeping software agrees with me, not that that means anything.)

I actually hope I am wrong on this one because the employee has been making deferrals since June 2015 and received an employer contribution for 10/31/15, so corrections would be in order if I am right.

Thanks to anyone who read this far...

[Tom Poje]

first, if the person shouldn't have entered, under EPCRS an amendment could be made to provide eligibility for this person (and just this person) whether you have to submit for a determination letter is unclear.( since the IRS has curtailed the determination letter program)

..............

since you provided a long question here is an even longer answer. (The Grinch)

This is the explanation from an Accudraft document of a few years ago. I believe this is the situation to which you are referring

(g) Reemployment of an Employee After a Break In Service and Before the Entry Date. For any Plan Year in which the eligibility requirements in Section 2.1 are based on Years of Service, if an Employee Terminates Employment with the Employer either prior to or after satisfying the eligibility requirements in Section 2.1 (but before the Employee's Entry Date in Section 2.1) and the Employee is subsequently reemployed by the Employer after incurring a Break in Service, then the Employee's Years of Service that were completed prior to the Break in Service will be recognized, subject to the following provisions:

(1) Determination of Years of Service for Eligibility Using the Rule of Parity. The following provisions apply to determining Years of Service for eligibility purposes:

(A) One Year Holdout Rule. Any Years of Service completed prior to an Employee's Break(s) in Service will not be counted in determining an Employee's eligibility to participate in the Plan until the Employee satisfies the One Year Holdout Rule. If the Employee has not satisfied the eligibility requirements in Section 2.1 as of the Employee's Reemployment Commencement Date and then satisfies the One Year Holdout Rule, then the Employee will become a Participant in the Plan as of the Entry Date in Section 2.1 after the Employee has satisfied the eligibility requirements in Section 2.1 (including, if applicable, an Entry Date that may occur during the One Year Holdout Rule period after the Employee's Reemployment Commencement Date). If the Employee has satisfied the eligibility requirements in Section 2.1 as of the Employee's Reemployment Commencement Date and then satisfies the One Year Holdout Rule, the reemployed Employee will enter the Plan as of the first day of the Eligibility Computation Period in which the Employee completes one Year of Service. Furthermore, the recognition of any Years of Service completed prior to an Employee's Break(s) in Service will be subject to both the One Year Holdout Rule and the Rule of Parity.

(B) Rule of Parity. Any Years of Service completed prior to an Employee's Break(s) in Service will not be counted in determining an Employee's eligibility to participate in the Plan if those Year(s) of Service are disregarded pursuant to the Rule of Parity. If such former Employee's Year(s) of Service are disregarded under the Rule of Parity, then (A) the reemployed Employee will be treated as a new Employee for purposes of Section 2.1 and (B) the Employee's Eligibility Computation Period will commence on the Employee's Reemployment Commencement Date and subsequent Eligibility Computation Periods will be based upon the provisions of the definition of Eligibility Computation Period (with the Reemployment Commencement Date substituted for the Employment Commencement Date, if applicable). If the Employee has not satisfied the eligibility requirements in Section 2.1 as of the Employee's Reemployment Commencement Date and such former Employee's Year(s) of Service are not disregarded under the Rule of Parity, then the Eligibility Computation Periods will remain unchanged. If the Employee has satisfied the eligibility requirements in Section 2.1 as of the Employee's Reemployment Commencement Date and such former Employee's Year(s) of Service are not disregarded under the Rule of Parity, the reemployed Employee will enter the Plan as of the Employee's Reemployment Commencement Date.

[AdKu]

mrslappywhite,

Which part of the plan provision did you include your emphasis?

It will make a big difference in the interpretation of the ECP.

I agree with the plan sponsor.

ERISA Outline Book Chapter 2 Section V. clearly addressed the question of a rehired employee when there is no BIS rule in the plan, here it is:

If there is no break in service rule, and the employee had already satisfied the eligibility requirements, the employee must re-enter the plan on the date of re-employment.

If the employee had not satisfied the eligibility requirements before his termination, the employee will first have to finish completing those requirements before becoming a participant in the plan.

If the eligibility conditions have been amended during the employee’s absence, and an employee who satisfied the prior eligibility conditions does not satisfy the amended eligibility requirements, he will have to complete the new eligibility requirements before re-entering the plan unless there is a plan provision "grandfathering" him as a participant.

Thanks,

AdKu

[mrslappywhite]

Tom,

I do understand that an amendment through EPCRS is a "blessed" fix, but people around here (my firm, I mean, not the message boards!) would rather return the money. I have fought for amending plans in the past for this very reason but have been overruled enough times to know not to bother going down that road. As for the remainder of your response, from what I gather it says that, barring any break in service rules, you count that prior service and wouldn't treat the rehire as a new employee. If that is what you meant to convey, then I think we are in agreement.

AdKu,

The only part of the plan provision I was emphasizing was the word "NOT", as it seems to be the most critical word in the sentence regarding the establishment of a new ECP for a rehired employee.

I did review the EOB and read the same section prior to posting. It is clear (as am I) that a rehired employee who had not completed the eligibility requirements prior to terminating has to meet them before being allowed to participate. What is not clear is the measurement period, which is what my long OP really boils down to:

Does the ECP for the rehire begin on the rehire date or is it the plan year in which he is rehired, since he already had an ECP tied to his original hire date?

Sorry if that wasn't initially clear, but after a night's sleep I found some clarity on the issue.