LTPT vs. elapsed time

Is it oversimplifying the concept that plan with an elapsed time eligibility provision is not subject to the LTPT rules?  I seem to have picked that up somewhere, and I haven't seen it debunked at any webcast.  Thanks.

It's not that they wouldn't be subject to the LTPT rules, but rather that it would be impossible for someone to have 2 consecutive 12-month periods of 500 hours of service without satisfying 1 year of elapsed time along the way. No one would ever enter as LTPT because they would have already satisfied the plan's normal eligibility requirements.

Ah - it's my limited understanding of all the nuances of elapsed time that is what is tripping me up.  Thanks!

I've been mulling this over, and was thinking of periods of severance potentially causing challenges; but also getting stuck on what the computation period is for LTPT in an elapsed time plan. Help me see what I'm not seeing here 😅

• Plan Provisions
  • Age - 21
  • Service - 12 months elapsed
  • Entry - Semi-annually (Jan/Jul)
• Employee Example:
  • Age - 27
  • DOH - February 7, 2023
  • DOT -  August 1, 2023
    • 2023 - Works 501 hours
  • DORH - Aug 10, 2024 -- incurs a period of severance, over 12 months, correct?
    • 2024 - Works 650 hours
• Original ECP - 2023-02-07 --> 2024-02-06 (no, period of severance does not give credit for 2023-08-02 --> 2024-02-06)
• Rehire ECP - 2024-08-10 --> 2025-08-09 (assume still employed) 
  • Entry date under normal plan rules = 2026-01-01
• LTPT: would you look at calendar years 2023, 2024 for entry 2025-01-01? 

With the very big caveat that IRS has not issued any guidance on how elapsed time or eligibility computation periods will apply with respect to LTPTs, here is my analysis of the situation:

For purposes of determining eligibility under the LTPT rules using the counting-hours method, the first eligibility computation period is 2/7/23 - 2/6/24, and the employee worked 500 hours during that period. The second eligibility computation period is 2/7/24 - 2/6/25, and the employee also worked 500 hours during that period. So, as of 2/6/2025, they have completed two consecutive eligibility computation periods with 500 hours of service, and they would enter the plan on 7/1/2025.

Under elapsed time rules, you are correct that there was a greater-than-12-month period of severance, so you don't count the time during the period of severance. However, unless the rule of parity applies, you still count months (or days) before the period of severance in determining when a 12-month period of service is completed. Before termination, the employee completed 5 months and 25 days of service. After re-hire, they had 5 more days (making a 6th month) on 8/14/24, then will have completed an additional 6 months for a total of one year period of service on 2/14/25. So they still enter the plan on 7/1/2025.

Now it's possible that the IRS will require plans which shift the eligibility computation period to the plan year for normal eligibility purposes to also apply the shift for LTPT eligibility purposes. If that's true, the 2nd eligibility computation period would have been the 2024 calendar year, in which case the employee would have entered the plan on 1/1/2025.

All that said, it wouldn't take too much to stretch your example a little further and come up with a situation where the employee could actually complete 2 consecutive eligibility computation periods with 500 hours of service under the counting-hours method without completing a 12 month period of service under the elapsed time method. So I should refine my earlier statement and say that it would be "mostly" impossible, and "almost" no one would enter.

Appreciate that analysis - because we're working on how to implement (with good faith interpretations) I also assumed it was nearly impossible but... could happen. Helpful outline (and I was getting myself stuck on whether or not rule of parity would play a part / whether you'd aggregate periods and having a hard time finding a resource walking through this!). 

I should also note that some of my old notes around rule of parity, because of the verbiage used, ONLY applies to a participant, so you'd never exclude service if they never entered the plan. That said, I also have an old slide (without notes) from a Bill Grossman presentation with the concept of restarting an ECP after rehire >12 months later... hence me starting with an example with a period of severance and restarting the ECP at rehire.... 🤔 

As CB Zeller notes, there is no formal guidance for what to do with LTPT under elapsed time rules.  I wonder if the IRS would consider borrowing concept from the coverage rules for determining whether a terminated person is excludable for being terminated with less than 500 hours.  The rule would look something like an LTPT employee would be deemed to work at least 500 hours if the employee worked 90 days during the plan year.  Simple.  Better than a 10-hour per day equivalency.  Too easy?