eligibility - 2 year wait

[Chippy]

A profit sharing plan (no deferrals) requires 24 months of consecutive service and then enters on the 1st of the year preceeding meeting eligibility.

If a participant is hired on 3/15/2014, terminated 12/22/2015, and rehired 3/24/2016. Since the participant terminated prior to having 24 consecutive months, does his eligibility computation period start over on his rehire date?

[Tom Poje]

if I read the IRS notes properly, the fact he did not have a 1 year period of severance means he is treated as if he never left.

see highlighted notes page 2 column 2, also example 2, also highlighted note page 6 item line c

such highlighted items because my brain refuses to retain this often and I need all the help I can get.

min partic standards publication 6388.pdf

[Mr Bagwell]

Don't take as argumentative... but his entry date would end up being 1/1/2016 anyway.

[Chippy]

If you disregard his prior service and start over on rehire, he wouldn't participate until 1/1/2018. Which is what the employer is doing. They literally were looking for 24 consecutive months of service.

[RatherBeGolfing]

If you disregard his prior service and start over on rehire, he wouldn't participate until 1/1/2018. Which is what the employer is doing. They literally were looking for 24 consecutive months of service.

You can't disregard prior service because you did not have a 1 year period of severance (even if that is what the employer wants to do). Because the employee returned from severance within 12 months, he is credited with service from 3/15/14 to 3/24/16, with an entry date of 1/1/16.

See Treas. Reg. §1.410(a)-7(a)(3)(vi) (Service spanning rule)

(vi) Service spanning. Under the elapsed time method of crediting service, a plan is required to credit periods of service and, under the service spanning rules, certain periods of severance of 12 months or less for purposes of eligibility to participate and vesting. Under the first service spanning rule, if an employee severs from service as a result of quit, discharge or retirement and then returns to service within 12 months, the period of severance is required to be taken into account. Also, a situation may arise in which an employee is absent from service for any reason other than quit, discharge, retirement or death and during the absence a quit, discharge or retirement occurs. The second service spanning rule provides in that set of circumstances that a plan is required to take into account the period of time between the severance from service date (i.e., the date of quit, discharge or retirement) and the first anniversary of the date on which the employee was first absent, if the employee returns to service on or before such first anniversary date.

[ESOP Guy]

This is a classic example of: what does the document say???

I have never worked with a document that didn't answer this question clearly and if the lawyer who wrote the document was even remotely competent you will comply with the law if you follow the document.

Read the document or the base document if a prototype.

In fact the guy who taught me this business would throw you out of his office if you came in it with this kind of question without the document in your hand. You better have been able to demonstrate you had looked for the answer. Only then would he take the document and walk you through finding the answer in it.