Can you define a Break in Service as 12 months working <1,000 hours

[ESOP Guy]

As the title says I just came across a plan document that defines a Break in Service as any year the participant works <1,000 hours. 

I don't recall ever seeing the number of hours being more than the <501.   

I have tried looking up the code and regulations and I see nothing that allows it that high number of hours.    

Thanks in advance. 

[Peter Gulia]

Is the plan a governmental plan? A church plan that has not elected to be ERISA-governed? A plan that covers no employee? Or an ERISA-governed plan?

[ESOP Guy]

It is an ESOP so it is an ERISA governed plan.   

[Peter Gulia]

ERISA § 404(a)(1)(D)’s “insofar” phrase calls a plan’s administrator (and other fiduciaries) to ignore a document provision that’s inconsistent with an ERISA title I command. Instead, one administers the plan as though it provides what ERISA’s title I commands.

ERISA § 202 begins with “No pension plan may require . . . .” ERISA § 203 begins with “Each pension plan shall provide . . . .”

For a plan governed by part 2 of subtitle B of title I of ERISA, for minimum participation or nonforfeitability an administrator would determine a break in service as no more restrictive than ERISA § 203(b)(3)(A) permits—that is, a year “during which the participant has not completed more than 500 hours of service.”

This is not advice to anyone.

[david rigby]

Interesting Q.  After reviewing the definition of BIS in IRC 411(a)(6)(A), and then reading how that definition is applied in subsequent subparagraphs, my suggested answer is NO.   

I wonder if the questioner has inquired about this unusual provision, specifically asking whoever wrote the document originally if that person/law firm can defend or explain.

[ESOP Guy]

We will ask the client to ask the attorney about that provision. 

 

Thanks for your help!