401k Eligibility - Layoff & Rehire

[TimR]

Employee was hired on 1/15/18. Employer laid off employee on 2/15/18. Employee was rehired on 5/7/18. Plan has 90 day service requirement to be eligible for the plan. Contributions can start on 1st day of the month following the month when 90 day service requirement is reached.

I've seen plenty of examples if the employee terminates/quits/is fired/etc. Is a layoff viewed in the same way? In most examples I see, it appears that time from 2/15/18 to 5/7/18 wouldn't even be considered a break in service. Is this correct? 

My thought is that as of 6/6/18, employee has completed 61 days of service (1/15-2/15 and 5/7-6/6). The time in between doesn't count and 29 days from now, on 7/7/18, the employee is eligible. Entering on the 1st day of the following month would mean employee is eligible to contribute and get employer match beginning on 8/1/18.

Can anyone confirm or correct me? Thank you!

 

[Larry Starr]

The problem is that employers euphemistically use the term "layoff" when they really mean "fired".  A layoff is something very specific, and mostly, our clients don't have layoffs, they have reductions in force (terminations).  A true layoff (in today's use of the term) versus a termination of employment should be called a TEMPORARY layoff.  Here's a useful definition:

A layoff is the temporary suspension or permanent termination of employment of an employee or, more commonly, a group of employees (collective layoff) for business reasons, such as personnel management or downsizing an organization. Originally, layoff referred exclusively to a temporary interruption in work, or employment but this has evolved to a permanent elimination of a position in both British and US English, requiring the addition of "temporary" to specify the original meaning of the word. 

There is one question that must be answered by the employer to determine what the employee status was during the time he was not being paid: "Was the employment relationship terminated when he was "laid off"; if someone called you and asked if that individual was still employed by you, would you say no?  If so, he is not "laid off", he is fired but you just don't want to use those words."

Another question that is helpful to get the employer to identify the true status of the "laid off" indivdiual: "Are you holding a job open for this individual that you expect him to come back to in a short period of time?".

Things like: do his benefits continue during his "layoff" are key indicators of status.

Once you have determined the status of the employees current relationship to the employer, you can very often find it easier to figure out eligibility issues.

 

[TimR]

Thank you, this is very helpful. HR has confirmed that the employee's benefits were still in place during the truly, "temporary layoff" and the employee's hire date will still be his original hire date for purposes of seniority, etc.

The specific wording of the plan states the employee may enter the plan on the first day of the following month "... after his completion of three consecutive months of eligibility service...". Understanding it was a true, "temporary layoff", but needs 3 months of consecutive service, I am inclined to understand that as a) 1/15-2/15=1 month, b) 5/7-6/6=1 month, and 1 additional month is required. Is this correct?

[Tom Poje]

see highlighted notes from the IRS publication, in particular the second page, special rules when plan uses elapsed time for crediting service

min partic standards publication 6388.pdf

[TimR]

After reading this information, I think I've boiled my question down to this:

I am confident the employee's hire date is 1/15/18. No rule of parity applies b/c EE was never in plan. All time since 1/15/18 appears to be 1 continuous period of service, no break in service, etc. Plan eligibility requirement is 3 months of service. Do I -

A) Count 3 months of service from 1/15/18 since EE was never terminated and say employee completes requirement on 4/15 and eligible for plan entry on 5/1. (Even though he wasn't hired back until 5/7/18 - seems very strange to me, but that's what HR seems to be indicating)

B) Count 3 months of actual days worked service (based on my information in previous posts) 1/15-2/15 (1month), 5/7-6/6 (1month), and wait until employee has completed 3rd month on 7/7 before considering eligible for plan entry.

[Larry Starr]

8 minutes ago, TimR said:

After reading this information, I think I've boiled my question down to this:

I am confident the employee's hire date is 1/15/18. No rule of parity applies b/c EE was never in plan. All time since 1/15/18 appears to be 1 continuous period of service, no break in service, etc. Plan eligibility requirement is 3 months of service. Do I -

A) Count 3 months of service from 1/15/18 since EE was never terminated and say employee completes requirement on 4/15 and eligible for plan entry on 5/1. (Even though he wasn't hired back until 5/7/18 - seems very strange to me, but that's what HR seems to be indicating)

B) Count 3 months of actual days worked service (based on my information in previous posts) 1/15-2/15 (1month), 5/7-6/6 (1month), and wait until employee has completed 3rd month on 7/7 before considering eligible for plan entry.

A is the correct answer based on the fact that he really was never terminated as an employee.