6 Months and 1000 hour requirement for eligibility

[Coleboy1]

Client wants to amend the plan to 6 months and 1000 hours for eligibility. Currently the plan has 1 year and 1000 hours. Can this be done? If so, are there any ramifications to having this? I have had 6 month eligibility before but not with an hours requirement.

 

Thank you!

[Lou S.]

I think you can do it if your document allows for it, but you have to have a fail safe language to bring in folks who meet the 1000 hours in the 1st year but not the first six months.

I could be wrong but it sounds like they are trying to bring in "full time employees" after 6 months while excluding "part time employees".  Which can be problematic under IRS rules if not structured properly.

[CuseFan]

I do not think you can require 1000 hours to be completed in a period of less than 12 months, whether for eligibility or (definitely not for) vesting. 

What is the goal, earlier entry for FT but keeping out PT under 1000 hours? There are other pre-approved plan eligibility options to accomplish that with the provision noted by Lou that anyone with 1000 hours in 12 months is eligible (unless permissibly categorically excluded).

[Coleboy1]

I'm not sure of the reasoning for this request. My boss recommended 6 months and 500 hours though I'm not sure if that is right for this client. There are a lot of employees. Does the 6 months mean the first 6 months or is a rolling 6 months. The plan document does have the fail safe language of 1000 hours in the first year. Also, the ADP test is barely passing right now so I'm worried about the affect of this potentially new eligibility will have on it.

[401king]

I'm surprised to see some of the responses but I shouldn't be so confident with my assumptions. 

I've understood that employers may, essentially, set any eligibility requirement so long as the fallback provides 1 Year of Service. Could an employer set eligibility to 1 month + 200 hours of service (with 1 YoS fallback)? If 1,000 hours is the issue, could they set 6-months + 999 hours? I've always understood the purpose of the 1 YoS fallback to provide flexibility for the first year for stricter requirements such as 6-month/1000 hours. 

[Coleboy1]

I might be dating myself but it seems when I first started out there was no hours requirement for anything less than a year of service but my memory could be failing me!

[ESOP Guy]

If you end up with 6 month and no hours make sure you have not set the plan up that has to follow the Service Spanning rules.

 

I will leave it up to others if you can have 1,000 hours and 6 months.  Like Coleboy1 my memory says long ago it can't be done but of late I thought as long as you have the 1,000 hours in the 12 month fall back it could be done.  But I can't cite anything.

 

What I can tell you is if the client has a lot of leave/comeback rehires the Service Spanning rules are a pain.  I have a staffing firm client that picked a 6 month elapsed time entry and my land we spend easily 50% of our census time working out all the people Service Spanning applies to.  

[CuseFan]

If it was straight elapsed time, but I think there is more flexibility now.

I have seen 1000 hour eligibility requirement with entry after the hours have been reached, like next payroll or first of the next month, but with a 12 month computation period. 

[Belgarath]

Many (possibly most, I don't know?) IRS pre-approved plans provide for a consecutive month (not more than 12) with at least (not to exceed 1,000) hour requirement for eligibility. And as Lou suggests, if they don't meet it in the initial eligibility period (of less than 12 consecutive months) they are swept into the 1 Year of Service requirement. I see no problem with a 6-consecutive month/1,000 hour eligibility, as long as you have the "fail-safe." We have a couple of employers who use it. 

[pmacduff]

to echo what ESOP Guy said - stay away from the service spanning rules - they can be a nightmare!  Quite a few years back we had a construction company using 6 consecutive months of service for eligibility & age 21, (no hours of service requriement).  IRS audit came along and had to check everyone due to the service spanning rules.  Took a LONG time, many hours between the client, me and the auditor.  When everything shook out it ended up costing the client ~$15k in contributions/earnings for a bunch of employees who were constantly leaving and returning.

 

(edited for spelling error!)

[MWeddell]

I agree with Lou S.  You can have 6 months + 1000 hours of service eligibility but then you also have to let someone in after 1 year with 1000 hours of service.

[jsample]

As a side issue, don't forget to educate the employer on the upcoming Long Term Part Time rules.  Whether they keep eligibility at 1 year or 6 months with 1,000 hours, LTPT will be eligible to defer.