Subscribe (Free) to
Daily or Weekly Newsletters
Post a Job

Featured Jobs

401k/DC Plan Administrator

Lebenson Actuarial Services
(Remote / Las Vegas NV)

Lebenson Actuarial Services logo

Retirement Plan Administrator +

Steidle Pension Solutions
(Remote / NJ / PA)

Steidle Pension Solutions logo

Retirement Plan Consultant

DWC - The 401(k) Experts

DWC - The 401(k) Experts logo

Retirement Plan Consultant

The MandMarblestone Group, llc
(Remote / Philadelphia PA)

The MandMarblestone Group, llc logo

Strategic Relationship Manager

401K Generation, Inc.
(Altamonte Springs FL)

401K Generation, Inc. logo

Senior Retirement Account Representative

Ohio Pension Services
(Akron OH)

Ohio Pension Services logo

Retirement Plan Administrator

Premier Plan Consultants
(Remote / San Diego CA)

Premier Plan Consultants logo

Senior Retirement Plan Administrator

TPS Group
(Remote / Buffalo NY)

TPS Group logo

Retirement Plan Consultant / Administrator

Carpenter Morse Group
(Remote / Longwood FL)

Carpenter Morse Group logo

DC Plan Administrator

Farmer & Betts, Inc.
(Remote / Tacoma WA / CO / OR)

Farmer & Betts, Inc. logo

Pension Plan Administrator

DeMars Pension Consulting Services, Inc.
(Overland Park KS)

DeMars Pension Consulting Services, Inc. logo

Retirement Plan Administrator

The Nolan Company
(Remote / Overland Park KS)

The Nolan Company logo

Sr. Benefits Plan Administrator

The Catholic Diocese of Arlington
(Arlington VA)

The Catholic Diocese of Arlington logo

401(k) Support Staff

Retirement, LLC
(Remote / Oklahoma City OK)

Retirement, LLC logo

Distribution Specialist

Carpenter Morse Group
(Remote / Longwood FL)

Carpenter Morse Group logo

Director, Business Development

National Benefit Services, LLC
(Remote / West Jordan UT)

National Benefit Services, LLC logo

Free Newsletters

“BenefitsLink continues to be the most valuable resource we have at the firm.”

-- An attorney subscriber

Mobile App image LinkedIn icon
Twitter icon
Facebook icon

BenefitsLink > Q&A Columns >

Who's the Employer?

Answers are provided by S. Derrin Watson, JD, APM

Hours of Service for Leased Employees

(Posted March 25, 1999)

Question 20: Once a temporary employee meets the criteria for becoming a leased employee (one year of service on a substantially full-time basis), must s/he be included in coverage testing for a subsequent year in which s/he works less than 1,000 hours (our Plan's definition of a Year of Service)? Section 414(n)(4) seems vague.

Answer: Q&A 12 of Notice 84-11 is substantially clearer:

Q-12. If, as of January 1, 1984, an individual is considered to be a leased employee, how are that individual's years of service determined for purposes of participation and vesting under the recipient's retirement plan?

A-12. For purposes of both participation and vesting, the entire period for which the leased employee has performed services for the recipient must be taken into account in accordance with section 414(n)(4), including periods before the effective date of section 414(n). Therefore, if the recipient is a calendar year taxpayer and the recipient's retirement plan requires one year of service before an employee may participate, and a leased employee began performing services for the recipient on January 1, 1981. However, because the individual does not become a leased employee until January 1, 1984, such leased employee need not begin to participate in the plan until January 1, 1984. Therefore, section 414(n) does not require the recipient to provide retroactive benefits for the leased employee for years of service prior to January 1, 1984.

The idea is that once you become a leased employee, you have the status of employee and are credited with all appropriate hours and years of service and compensation retroactively to when you started providing services.

Let's try a couple of examples.

John and Mary both work for Accountants Underworked, a temporary staffing firm. An accounting firm is shorthanded, and calls Accountants Underworked on January 2, 1997, asking for a couple of temps. John and Mary come in response to the call. Assume that Accountants Underworked is the true common law employer. The accounting firm has a calendar year profit sharing plan with a 1 year eligibility requirement, and January 1 and July 1 entry dates.

Mary is assigned a mammoth project that will take three years to complete, working full time. January 2, 1998, she achieves the status of leased employee, having performed 1500 hours of service in a 12 month period. That is also the anniversary of her employment commencement date, which is treated as the first date she performed services. She was credited with more than 1000 hours for that first year, and so has satisfied the eligibility requirement. She will enter the plan on the next entry date, July 1, 1998.

John has a project that, while ongoing, doesn't take as much time. He works 1200 hours during 1998 and 1999, and also does other short term work with Accountants Underworked. He stays on the same 100 hours/month schedule until May of 2000, when he jumps to 150 hours/month. Hence, during the period from December 1, 1999 through November 30, 2000, John provides 1500 hours of service to the accounting firm and becomes a leased employee. He is credited with 3 years of service for vesting purposes (1998, 1999, and 2000). He satisfied the year of service requirement in 1998. He will enter the plan January 1, 2001.

The consequences of being a leased employee are discussed at Q 4:25-32 of my book, Who's the Employer?.

Important notice:

Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner or to readers. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of this and similar situations.

The law in this area changes frequently. Answers are believed to be correct as of the posting dates shown. The completeness or accuracy of a particular answer may be affected by changes in the law (statutes, regulations, rulings, court decisions, etc.) that occur after the date on which a particular Q&A is posted.

Copyright 1999-2017 S. Derrin Watson
Related links:

(restricted access)

(restricted access)

© 2021, Inc.