Eligibility Computation Period for Re-Hired Employees

Let's say the plan requires 1 year of service with 1,000 to become eligible. The entry dates are 1/1 and 7/1 (semi-annual). Also, let's say if the participant did not complete the 1,000 hours by anniversary date, the plan changes the eligibility computation period to calendar year.

An employee is hired in 2018 (let's say on 1/10/2018). He is terminated in 2018 before completing 1,000 hours. He is then re-hired in 2019 (let's say on 2/10/2019 - so he hasn't completed 1,000 hours by anniversary date) and works 1,000 hours in 2019 calendar year. Would he become eligible on 12/31/2019 (and enter the plan on 1/1/2020) or 2/9/2019 (and enter the plan on 7/1/2020)?

Basically, would the plan switch to calendar year eligibility period because the employee did not complete eligibility by anniversary date? Or, would he be treated as a new employee as he did not complete the eligibility requirements by his initial anniversary date?

Thanks.

I suggest to read the plan document sections about the computation periods. It may specify that you re-start a computation period  to be 12 month of employment upon rehiring only if a participant incurred 1-Year Break in Service. And if it is silent, I may still base my decision on the 1-Year Break in Service rule described in the plan document, i.e. if a participant incurred 1-Year Break in Service, treat him as a new employee for eligibility purposes.

since the person did not have a break in service it is almost as if he never quit. so enters 1/1/2010 as far as I can tell

some basic documents describe it better than others, but the rules are the same

(a) Rehired Participant/immediate re-entry. If any Former Employee who had been a Participant is reemployed by the Employer, then the Employee shall become a Participant as of the reemployment date, unless the Employee is not an Eligible Employee or the Employee's prior service is disregarded pursuant to Section 3.5(d) below. If such prior service is disregarded, then the rehired Eligible Employee shall be treated as a new hire.

(b) Rehired Eligible Employee who satisfied eligibility. If any Eligible Employee had satisfied the Plan's eligibility requirements but, due to a severance of employment, did not become a Participant, then such Eligible Employee shall become a Participant as of the later of (1) the entry date on which he or she would have entered the Plan had there been no severance of employment, or (2) the date of his or her re-employment. Notwithstanding the preceding, if the rehired Eligible Employee's prior service is disregarded pursuant to Section 3.5(d) below, then the rehired Eligible Employee shall be treated as a new hire.

(c) Rehired Eligible Employee who had not satisfied eligibility. If any Eligible Employee who had not satisfied the Plan's eligibility requirements is rehired after severance from employment, then such Eligible Employee shall become a Participant in the Plan in accordance with the eligibility requirements set forth in the Adoption Agreement and the Plan. However, in applying any shift in an eligibility computation period, the Eligible Employee is not treated as a new hire unless prior service is disregarded in accordance with Section 3.5(d) below.

(d) Reemployed after 1-Year Break in Service ("rule of parity" provisions). If any Employee is reemployed after a 1-Year Break in Service has occurred, Years of Service (or Periods of Service if the Elapsed Time method is being used) shall include Years of Service (or Periods of Service if the Elapsed Time method is being used) prior to the 1-Year Break in Service subject to the rules set forth below. The Employer may elect in Appendix A to the Adoption Agreement (Other Permitted Elections) to make the provisions of this paragraph inapplicable for purposes of eligibility and/or vesting.

(1) In the case of a Participant who under the Plan does not have a nonforfeitable right to any interest in the Plan resulting from Employer contributions, Years of Service (or Periods of Service) before a period of 1-Year Breaks in Service will not be taken into account if the number of consecutive 1-Year Breaks in Service equals or exceeds the greater of (A) five (5) or (B) the aggregate number of pre-break Years of Service (or Periods of Service). Such aggregate number of Years of Service (or Periods of Service) will not include any Years of Service (or Periods of Service) disregarded under the preceding sentence by reason of prior 1-Year Breaks in Service; (2) A Participant who has not had Years of Service (or Periods of Service) before a 1-Year Break in Service disregarded pursuant to (1) above, shall participate in the Plan as of the date of reemployment, or if later, as of the date the Former Employee would otherwise enter the Plan pursuant to Sections 3.1 and 3.2 taking into account all service not disregarded.

Reemployment of an Employee Before a Break In Service and Before Eligibility Requirements Are Satisfied. For any Plan Year in which the eligibility requirements under Section 2.1 are based on Years of Service, if an Employee Terminates Employment with the Employer prior to satisfying the eligibility requirements in Section 2.1 and the Employee is subsequently reemployed by the Employer before incurring a Break in Service, then (1) the Employee's pre-termination Year(s)  of Service (and Hours of Service during any computation period) will be counted in determining the satisfaction of such eligibility requirements, and for all other purposes, as applicable, and (2) the Eligibility Computation Period, Vesting Computation Period, and/or benefit accrual computation period, as applicable, will remain unchanged.

Reemployment of an Employee Before a Break In Service and After Eligibility Requirements Are Satisfied. For any Plan Year in which the eligibility requirements under Section 2.1 are based on Years of Service, if an Employee Terminates Employment prior to the Employee's Entry Date in Section 2.1, the Employee had satisfied the eligibility requirements in Section 2.1 as of the Employee's Termination of Employment, and the Employee is subsequently reemployed by the Employer before incurring a Break in Service, then (1) the Employee will become a Participant as of the later of (A) the date that the Employee would enter the Plan had he or she not Terminated Employment with the Employer, or (B) the Employee's Reemployment Commencement Date, (2) the Employee's pre-termination Year(s) of Service (and Hours of Service during any computation period) will be counted for all purposes, and (3) the Vesting Computation Period and/or benefit accrual computation period, as applicable, will remain unchanged.

Reemployment of a Participant Before a Break In Service. For any Plan Year in which the eligibility requirements under Section 2.1 are based on Years of Service, if an Employee Terminates Employment after becoming a Participant and is subsequently reemployed by the Employer before incurring a Break in Service, then (1) the reemployed Employee will reenter the Plan as of the Employee's Reemployment Commencement Date, (2) the Employee's pre-termination Year(s) of Service (and Hours of Service during any computation period) will be counted for all purposes, as applicable, and (3) the Vesting Computation Period and/or benefit accrual computation period, as applicable, will remain unchanged.

Reemployment of an Employee After a Break In Service and Before the Entry Date. For any Plan Year in which the eligibility requirements in Section 2.1 are based on Years of Service, if an Employee Terminates Employment with the Employer either prior to or after satisfying the eligibility requirements in Section 2.1 (but before the Employee's Entry Date in Section 2.1) and the Employee is subsequently reemployed by the Employer after incurring a Break in Service, then the Employee's Years of Service that were completed prior to the Break in Service will be recognized. 

Reemployment of a Participant After a Break In Service. For any Plan Year in which the eligibility requirements under Section 2.1 are based on Years of Service, if an Employee (1) was a Participant in the Plan, (2) Terminates Employment with the Employer, and (3) is subsequently reemployed by the Employer after incurring a Break in Service, then the Employee's Year(s) of Service that were completed prior to the Break in Service will be recognized. 

Ignoring Service for Eligibility If Service Requirement for Eligibility Is More Than 1 Year of Service. Notwithstanding anything in the Plan to the contrary, if this Plan (or a component of the Plan) provides at any time that an Employee must complete more than one (1) Year of Service for eligibility purposes, and such Employee will have a 100% Vested Interest in the Participant's Account (or the sub-Account that relates to such component) upon becoming a Participant in the Plan, then with respect to an Employee who incurs a Break in Service before satisfying such eligibility requirement (1) the Employee's Year(s) of Service (and Hours of Service) that were completed prior to the Employee's Break(s) in Service will not be counted for eligibility purposes, and (2) the Employee's Eligibility Computation Period will commence on the Employee's Reemployment Commencement Date and subsequent Eligibility Computation Periods will be based upon the provisions of the definition of Eligibility Computation Period (with the Reemployment Commencement Date substituted for the Employment Commencement Date, if applicable).

If there are approved plans still using a "1-year" break in service, so be it, and don't be fooled by provisions that are discussing anything other than the rule of parity. As far as I know, you do not get to restart anyone as a new employee unless all prior service is disregarded, and the only time you get to disregard all prior service is because (1) the plan still has the rule of parity (of which one condition is a 5-year break in service, see IRC 410(a)(5)(D)(i)(I)), and (2) the participant meets all the conditions stated in the rule of parity (see the rest of IRC 410(a)(5)(D).

Sometimes a plan uses both the "1-year" and the "5-year" provisions in the same section, which is not very useful is it? Such plans are probably trying to coordinate the provisions of 410(a)(5)(D) at the same time as 410(a)(5)(C). However, paragraph (C) of the reg is only a "temporary" hold-out, not a permanent loss of prior service credit, as under paragraph (D) of the reg. So, even if you get past the hold-out period of one year (assuming the plan uses that provision), then you qualify to progress on to evaluate the rule of parity with its 5-year BiS provision, and only then do you get to reset past service to zero (assuming that in addition to the 5-year BiS, you meet the other conditions in the plan, which should reflect the rest of 410(a)(5)(D)).