Excluded Class Employee works 1000 hours - What next?

Not sure if this has been asked before.  What if an excluded class employee (let's say person categorized as a Seasonal Worker) happens to work 1,000 hours during the plan year.  So, hired January 1, 2022 and has 1,000 hours by December 31, 2022.  Assume plan document has fail safe language so that this employee becomes eligible upon 1,000 hours in plan year.  According to the intent of Quality Assurance Bulletin FY-2006-3 (which I can't find anywhere online), this person would be eligible, but when?

In other words, if the employer makes an employer contribution for 2022 plan year, would this Seasonal employee be eligible?

How long is this person eligible?  Under 403(b) there is a "once in, always in" provision, but I can't find the same for a 401(a) plan.  

If this person continues to be classified as a Seasonal Worker in 2023 and beyond, what happens if this person works under 1,000 hours in any future year?

Thoughts are greatly appreciated!

I think the attached is what you were looking for.

There is a prohibition for excluding a classification of employees where the classification is a proxy for a service-based exclusion - for example, excluding part-time or seasonal employees.  If the plan has such an exclusion, then generally the plan must consider eligible anyone who earns One Year of Service (1000 hours in an Eligibility Computation Period) and meets any age requirement.

Let's say in your example the seasonal worker met the eligibility requirements on 12/31/2022 and became a participant on a 1/1/2023 entry date.  This person would not get an allocation as of 12/31/2022 because they did not enter the plan until 2023. 

Let's say this person did not work 1000 hours in 2023 but remained an active employee.  If the plan has an allocation condition that the employee must work 1000 hours in the plan year to receive an allocation, this person would not receive an allocation for 2023.

The person does not lose their eligibility status unless they terminate employment and the plan has rules of parity that wipe out that service - typically the person has consecutive One Year Breaks in Service that exceed 5 years more.

Keep in mind that a plan can have totally different rules for determining eligibility service, vesting service and benefit accrual service. 

Note that this is a simplified illustration.

Employee_Plans_Determination_-_Quality_Assurance_Bulletin.pdf

Paul,

Thanks for the QAB!  I really appreciate it.  I would agree that the employee in my example would not receive an employer allocation for 2022 since that person does not become a participant until 2023.  I think I also agree with your analysis regarding maintaining eligibility even if that person continues to be categorized in the excluded class.  I just can't find any source to prove this out.

Under our assumption, this would mean the employee would be eligible to make employee elective deferrals in 2023 (assuming a 21 and one year of service requirement) even though that person may have under 1,000 hours during the year and be still classified as a Seasonal Worker.

So, once eligible, always eligible, much like the 403(b) IRS Notice 2018-95.

The answer if this person gets a contribution for 2022 is determined by the plan document not the law.  In the end the document will reflect the law but the law gives some flexibility regarding this issue. 

Once you determined they have the 1,000 hours in the 12 months what is the plan's entry dates?  If it is the 1/1, 7/1 following the person doesn't enter the plan until 1/1/2023 and wouldn't get a 2022 contribution.  If the plan's entry dates are the 1/1 of the year they meet the requirements then the person would enter 1/1/2022 and most likely get a contribution.  So read your document and determine when the person enters the plan.  

Likewise, read the document if they stay a PARTICIPANT or not.  I can't imagine the answer is anything but they are a participant until they terminate once they enter the plan.   The plan document will likewise tell you the conditions of when a person will share in any future contributions. 

6 hours ago, ESOP Guy said:

The answer if this person gets a contribution for 2022 is determined by the plan document not the law.  In the end the document will reflect the law but the law gives some flexibility regarding this issue. 

Once you determined they have the 1,000 hours in the 12 months what is the plan's entry dates?  If it is the 1/1, 7/1 following the person doesn't enter the plan until 1/1/2023 and wouldn't get a 2022 contribution.  If the plan's entry dates are the 1/1 of the year they meet the requirements then the person would enter 1/1/2022 and most likely get a contribution.  So read your document and determine when the person enters the plan.  

Likewise, read the document if they stay a PARTICIPANT or not.  I can't imagine the answer is anything but they are a participant until they terminate once they enter the plan.   The plan document will likewise tell you the conditions of when a person will share in any future contributions. 

Thanks for the thoughts.  Agreed regarding the plan document for allocation purposes.

However, most of the plan documents I read are rather vague on this last part about staying a participant.  Even the basic plan document language generally states that once an employee earns a year of service, they no longer are part of that excluded class.  But, does that mean forever?  At least with the 403(b) guidance, they make it clear that once in, always in.  I can't find an equivalent for 401(a) plans.