Computation Period

[thepensionmaven]

I believe this was discussed in another thread quite a while ago, but...

Plan participation as the January 1st or July 1st following completion of age 21 and 12 months of service.  Participant hired 1/2/2018.  Eligibility computation period is 1/2/18-1/1/19.

Would not the individual enter 1/1/19, rather than 7/1/19?????

[david rigby]

I've seen both.  In fact, it happened to me: started a new job on January 2, and my employer declared me a participant on the following January 1.  An administrative policy.  If the ER wants to use July 1, that won't seem very "employee friendly".  Note that this issue (probably) does not apply at other dates because January 1 is almost always a holiday (and maybe 1 or 2 additional days, depending on the weekend). 

[ESOP Guy]

I have seen both also.  The current firm I work for their policy would be they would enter 1/1/2019 is our recommendation to all our clients as long as the document says they enter on or the next date of entry.  Double check the document.  .  

This all hangs on what 1 year means in this context.  Is it 365 days including the first day they work which would end 1/1/2019.  Or does this mean how we treat things like birthdays at which time it is 1/2/2019. 

[Bri]

This is where the phrase "coinciding with or next following" differs from straight-up "next following".  At least we do all agree the YOS ends on 1/1, right?

[ESOP Guy]

2 hours ago, Bri said:

This is where the phrase "coinciding with or next following" differs from straight-up "next following".  At least we do all agree the YOS ends on 1/1, right?

As I stated in my comment I don't think there is a 100% agreement on what 1 YOS means in this context.  I think most people would say the YOS is hit on 1/1.

But no one says they have been married 1 year on the say before their anniversary.  Likewise, people don't say their child is 1 the day before their birthday.  So the common English usage of the term 1 Year of Service would seem to say it was up on 1/2 not 1/1.   In fact I have worked for a number of TPA firms their software would say the YOS was hit on 1/2 and this person would enter 7/1. 

When I try to explain why the firm works for says it is 1/1 and not 1/2 I get a call from most of my clients who don't understand our thinking.  Once I spell it out they go with our recommendation but it is clear they could have lived with 1/2 and the person entering 7/1. 

As far as I can tell the IRS and DOL haven't opined on the topic and I haven't ever seen a plan that uses the 1/2 and have the person enter on 7/1 get hit by the IRS or DOL. 

In fact the first time someone brought this up to me my reaction is this is yet another example of people over thinking things in this industry.  (That happens a lot in this industry just read a random selection of questions on this board where people get all bent out of shape over immaterial amounts)     I am still of this opinion I just don't care to debate it with the people I work with.  So if the firm has a policy of saying in this case it is 1/1 and the document says on or next following in the DOE definition I go with it.   But deep down I don't see how anyone can pound the table and say they have to be right by doing that and any other take just has to be wrong. 

[D.J. Simonetti]

2 hours ago, Bri said:

This is where the phrase "coinciding with or next following" differs from straight-up "next following".  At least we do all agree the YOS ends on 1/1, right?

Absitively. On the facts, the YOS ended on 1/1 so the entry date is determined by the plan language. Most employers whose plans say "next following" would probably give the employee a break and let him in on 1/1 anyway but that might be risky if the employee is an HCE.

[Kevin C]

20 hours ago, Bri said:

At least we do all agree the YOS ends on 1/1, right?

The DOL agrees.  The initial eligibility computation period is the 12 month period beginning on the employment commencement date.  If the plan defines later eligibility computation periods based on anniversaries of employment, the second 12 month period begins on the first anniversary of the employee's employment commencement date. 2530.202-2 (a) & (b)(1). So, the initial period ends the day before the one-year anniversary.