Counting hours for eligibility of part-time professionals

[E as in ERISA]

How do you count hours for eligibility for a plan for a professional who only records billable hours (e.g., an attorney in a law firm)?

Actual hours worked are generally more than billable hours. But certain types of professional services firms generally do not even collect information on the non-billable hours. And although the billable hours might be said to be what the employee is paid for, the employee's pay is not so directly tied to hours that it would be adjusted up or down specifically for differences between actual billable hours and the required ones.

Are equivalencies generally used? Or do you just use the elapsed time method?

[rcline46]

Use equivalencies if you must. Elapsed time has some surprises that may be difficult for most systems to handle.

[E as in ERISA]

I'm reacting to the "if you must" comment and wondering if many plans are on the "actual hours" method and just treat billable hours as satisfying that method. But, if so, I'm wondering if there is any actual authority for doing so, or whether that was just the practice when most working in professional services were full time and has not been updated to reflect a lot more flexible hours arrangements.

[Mike Preston]

Pardon my silliness, but NOBODY pays employees solely for billable hours, part time or full time. Something makes no sense.

[K2retire]

Why do employers who refused to track hours keep insisting on having an actual hours requirements as part a of their plan provisions? It won't help you in the past, but I tell clients that they either have to figure out a way to track hours or change their plan provisions.

[ESOP Guy]

For what it is worth this is one of those issues where drafting the document correctly matters. This question ought to be answered in the document but i admit it isn't often times. For 2015 it might be too late but I would recommend amending the plan to clearly allow an equivalency method.

I think a very strong case can be made that if the document says use actual hours you can't use an equivalency method and the plan sponsor needs to come up with a way to determine actual hours. Having said that I have seen the plan sponsor coming up with what they think is their best idea of the actual hours.

But once again this is a flawed document design in my opinion if the sponsor isn't going to track actual hours and have a plan that says use actual hours.

[ESOP Guy]

One other insight:

It is most likely obvious he worked at least 1,000 hours. Do you really need to know more? He most likely billed over 1,000 hours. So if this is like most plans this person clearly vests, gets a contribution, enters plan which is triggered by a 1,000 hour threshold. Attorneys work those kinds of hours is basically a given isn't it?

Having said that I still think amending the plan is the right thing to do.

[jpod]

The title of this post asks us to assume that this attorney is part time, so the last comment about attorneys working "those kind of hours" doesn't necessarily fit here. I agree with that you can't use equivalencies if the document doesn't provide for that. I would fix this problem via a prospective amendment. As to the past, I think the only thing which can be done is to make a judgment call using the DOL reg's definition of hour of service. Unless there was a clear expectation that the individual was expected to work so few hours that he/she could not realistically have worked 1,000 hours or whatever hour threshold you are looking at, you err in the employee's favor.

[E as in ERISA]

The plan is a non-standardized prototype. In the adoption agreement, the box is checked for "1 year of eligibility service" for the various types of contributions. They have filled in "1000" for hours of service for eligibility. The definition of hours in the prototype is "each hour for which an Employee is paid ... for the performance of duties" and "during which no duties are performed." It says that can be changed in the adoption agreement. In the adoption agreement, they've checked "actual hours ..." (There are options for "days worked" ... weeks, semi-monthly and monthly equivalencies but those aren't checked.) HR says that they use billable hours to determine eligibility. There are part time employees.

[ESOP Guy]

If they set the precedence of ONLY using billable hours in the past you might have to live with that. One would hate to find out that someone was excluded in the past because only billable hours was used and you now want to include someone using billable hours plus something.

[E as in ERISA]

If the plan says "actual" hours, isn't that an operational error to not track actual hours and to use "billable" hours instead? How do they justify that. Shouldn't they consider amending the plan to use equivalencies? I wonder whether this is an isolated case or whether there may be a lot of professional service firms doing this? I'm not familiar with this sector.

[Mike Preston]

People do the darndest things. They need an ERISA lawyer. Sheesh.