Eligibility - contract sign date or actual first day of work

A large group of doctors has several doctors in their census with DOH 7/1/2024 which makes them eligible 7/1/2025 in accordance with the plan document.  This was on the census file uploaded to the record keeping platform who determines eligibility. They are eligible then for SH, PS and DB.

Now the plan sponsor says they didn't actually start working until mid-August and therefore should enter 1/1/2026.  These doctors make the max in 6 months and so the employer contribution is large - they maximize the K plan with SH/PS.

My approach - plan sponsor we rely on you. Tell us their DOH.  I don't know if the IRS has a position on this.  I advised them to keep the DOE as 7/1/2025 as that may be the expectation of these recent hires. 

Thoughts?

Thank you

Treas. Reg. §1.410(a)-7(a)(3)(ii): Employment commencement date reads

Quote

(A) A concept which is necessary in order to credit service accurately under any service crediting method is the establishment of a starting point for crediting service. The employment commencement date, which is the date on which an employee first performs an hour of service within the meaning of 29 CFR 2530.200b-2 (a) (1) for the employer or employers maintaining the plan, is used to establish the date upon which an employee must begin to receive credit for certain purposes (e.g., eligibility to participate and vesting).

While 1.410(a)-7 is, in general, about the elapsed time method in particular, this section states "in order to credit service accurately under any service crediting method". Unless there's precedent out there otherwise, I would assume using the date they actually started working would be defensible under the above definitions, as they never worked an hour of service prior to that. 

YMMV, Not legal advice, etc etc.

Interesting. A very common, analogous fact pattern is when a new salaried employee is scheduled to start work on New Year's Day (or any other non-workday), and that employee does not show up for work until January 3rd.  The employee does not perform an hour of service until January 3rd but is compensated as if they started on January 1st. Some plans will say this employee's date of hire is January 1st and the employee's initial eligibility computation period starts on January 1st.  Other plans will say this employee's first eligibility computation period starts on January 3rd.

In the OP, the time period is significantly later but the other facts are essentially the same.

It is worth noting that doctors are not described as shareholders or owners, so these doctors will be considered as NHCEs regardless of how much compensation they earn in their first calendar year of employment, so there is not discriminatory.

It will be interesting hear from our BL colleagues how relevant the time period is in this situation to determining if there is only one possible determination of the date of hire, or if the plan administrator can choose the designate either July 1st or first day worked is the date of hire for purposes of determining the start or the doctors' first eligibility period.

The plan document should define the eligibility computation period and likely says first performed an hour of service.

The 1/1 vs 1/3 start for a salaried individual is an interesting case. If they were paid for 1/1 then they were credited with hours of service for such date. One could argue that it is a reasonable interpretation to equate crediting with performing, but a strict interpretation of performed would be defensible. In such a case the PA should interpret and subsequently follow the precedent.

In the case above, big gap from 7/1 to mid-August.

Consider also that “[a]n hour of service [might include] each hour for which an employee is paid, or entitled to payment, by the employer on account of a period of time during which no duties are performed . . . due to vacation[] . . . or leave of absence.” 29 C.F.R. § 2530.200b-2(a)(2) https://www.ecfr.gov/current/title-29/part-2530/section-2530.200b-2#p-2530.200b-2(a)(2).

While a norm for many employees is that one must work a while to accrue vacation days, an executive or valued knowledge worker might get a different arrangement. I’ve seen employments begin with a paid vacation or mini-sabbatical—often, two months or more.

Here is a stupid question based on what is being discussed above, just curious as lately I am seeing this more than usual. I am not the police and I go with what the client says (though stupidly question it with the client)

Example: December 15th, having an interview with the prospect and saying, I am hiring you effective 1/1/2025 (which is a Saturday) but the first day you can come to the office is 1/3/2025.

So, what is DOH for pension purposes?

Assume document says for eligibility:

• Completion of YOS
• Entry is 1/1 and 7/1 coincident with or next following

Hmmmm

If the employee’s pay includes pay for January 1-2, the rule cited above might suggest counting a time when the employee otherwise would work but does not work because of a holiday.

“An hour of service is each hour for which an employee is paid, or entitled to payment, by the employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty[,] or leave of absence.” 29 C.F.R. § 2530.200b-2(a)(2) https://www.ecfr.gov/current/title-29/part-2530/section-2530.200b-2#p-2530.200b-2(a)(2).

If a term to be applied is something other than an employment commencement date that refers to a first hour of service, the plan’s administrator might read carefully the plan’s definition. Or if the plan uses a word or phrase but none of the plan documents and none of ERISA title I, the Internal Revenue Code, or other relevant Federal law sets the in-context meaning of the word or phrase, a plan’s administrator might use its discretion to interpret the plan and its discretion to find facts.

This is not advice to anyone.

Agree with @Peter Gulia.  More than a few years ago, that exact pattern happened to me: hired for a January 1 (Tuesday, holiday, office closed) start date, first hours worked on January 2 (Wednesday).  But I was paid for the entire month, so the ER (wisely) treated me as employed on January 1.

First, implicitly this issue appears to be a question arising only under a plan using elapsed time.  As someone stated above, under the applicable rules, the employment commencement date is the date on which the employee first performs an hour of service.  This is the date that the rules require that service begins.  That is, a plan cannot credit less time than what this rule requires.  I believe a plan could use a more generous standard to determine the date on which service has to begin.  Like someone said above, since it is the first year, it should not be discriminatory.

§ 1.410(a)-7(a)(2) provides in parts relevant to my thoughts:

(2)(i) ...Under this alternative method of crediting service, an employee's service is required to be taken into account for purposes of eligibility to participate and vesting as of the date he or she first performs an hour of service within the meaning of 29 CFR 2530.200b-2 (a) (1) for the employer or employers maintaining the plan. Service is required to be taken into account for the period of time from the date the employee first performs such an hour of service until the date he or she severs from service with the employer or employers maintaining the plan.

(3) Overview of certain concepts relating to the elapsed time method--....

(ii) Employment commencement date....

(B) In order to credit accurately an employee's total service with an employer or employers maintaining the plan, a plan also may provide for an "adjusted" employment commencement date (i.e., a recalculation of the employment commencement date to reflect noncreditable periods of severance) or a reemployment commencement date as defined in paragraph (b) (3) of this section. Fundamentally, all three concepts rely upon the performance of an hour of service to provide a starting point for crediting service. One purpose of these three concepts is to enable plans to satisfy the requirements of this section in a variety of ways.

(C) The fundamental rule with respect to these concepts is that any plan provision is permissible so long as it satisfies the minimum standards. Thus, for example, although the rules of this section provide that credit must begin on the employment commencement date, a plan is permitted to "adjust" the employment commencement date to reflect periods of time for which service is not required to be credited. Similarly, a plan may wish to credit service under the elapsed time method as discrete periods of service and provide for a reemployment commencement date. Certain plans may wish to provide for both concepts, although it is not a requirement of this section that plans so provide.