Passage of time eligibility

[30Rock]

Does anyone know what the following means in the PPD document - plan elects a 6 month eligibility (not consecutive and no hours required), elapsed time is not marked but actual hours is marked. The adoption agreement notes that this is passage of time and not elapsed time and no minimum hours of service is required. My question is do you still have to apply the 1000 hour in a 12 month period failsafe? How would any break in service provision work? Thanks!

[C. B. Zeller]

Passage of time typically means that the participant becomes eligible after a period of time without regard to any service or breaks in service. It's similar to elapsed time, but without the service spanning rules - or rather, if the service spanning period were forever, instead of 12 months.

Say an employee was hired on 11/6/2025, works for 2 months and quits on 1/6/2026. Then they show up again a year later and are re-hired on 3/1/2027. They are in the plan immediately on 3/1/2027, because more than 6 months have passed since their original date of hire. Contrast that to elapsed time, where they wouldn't get credit for their period of severance (because it was more than 12 months) and would have to work another 4 months after being re-hired in order to have earned a total of 6 months of elapsed time.

It's probably a good idea to keep the 1000 hours failsafe in the document. While I can't think of a situation where it would override a 6 month passage-of-time requirement, maybe there are some class exclusions that it would be needed for. It also gives you some assurance, because it sounds like this passage-of-time provision is custom language added to the document. So, on the off chance that the IRS finds issue with it on audit, then at least you have the standard language to fall back on.

As far as applying break-in-service rules, I don't think they would apply. But ultimately the interpretation of the plan document is up to the Plan Administrator, so they should abide by their best judgement, taking into account what has been communicated to participants about the rule, and probably with they lawyer's advice.

[30Rock]

The plan sponsor is trying to be more restrictive and does not like the service spanning of elapsed time. But I do not think passage of time will help, and in fact is more lenient if the period of severance exceeds 12 months.  Example - If plan has 6 month eligibility, with passage of time, you still include the months he was gone. So even if he comes back within 12 months, all the time since hire date are counted? Hired on 11/6/25, work 2 months, quit on 1/6/26, rehired on 6/7/26. He is immediately eligible and you do span the time he was gone, but it is easier since you just look at the calendar and add 6 months to the date of hire and there is no computation needed as to whether there was a 12 month period of severance. Thoughts?

[C. B. Zeller]

If they want to be more restrictive, then passage of time is not going to accomplish that. They probably want to use a counting hours method, possibly with an equivalency if they don't/can't track actual hours.

[30Rock]

Yes I agree thanks!

[austin3515]

Just don't forget that counting hours generally means tracking LTPT which is no bueno.  I caution clients in the starkest of terms away from dealing with those rules.  They are absolutely impossible to comply with.  I dont care who you are, what recordkeeper, etc.  They are 100% infeasible.  It's laughable they even wrote it into law.

[RatherBeGolfing]

1 hour ago, austin3515 said:

Just don't forget that counting hours generally means tracking LTPT which is no bueno.  I caution clients in the starkest of terms away from dealing with those rules.

Same.  We are doing more and more elapsed time to get away from LTPTE issues.  We also have more employers with little to no service requirements.  This isn't as cost-prohibitive as it once was with the new participant count methodology, top-heavy relief, affordable MEP/PEP solutions, etc.

FWIW, I think the days of excluding employees from plans are numbered.  Our legislators and regulators will continue to close the retirement plan coverage gap, which means that our plans will need to be more inclusive.