How does the elapsed-time eligibility method work?
Rev. 02/28/14, E-mail Alert 2014-3
The elapsed-time method of determining eligibility is an alternative to the hours of service method. The elapsed-time method provides an administrative convenience that may be used by employers with workers in jobs where counting hours is not always easy or possible. The elapsed-time method does not count the actual or equivalent hours worked, but instead measures the period of time that commences on the employee's date of hire through the date of the employee meeting the eligibility requirements. The elapsed-time method works well with employers who wish to ease the administrative process of including part-timers, construction workers, truckers, seasonal workers or other employees in jobs where counting hours is not always easy or possible. However, if the employer's goal is to exclude any of these categories of jobs from plan participation, the counting of 1,000 hours of service to determine a year of service would be the appropriate method.
Elapsed-time for eligibility of one year of service
An employee who is hired on April 15, 2013, and is still employed on April 15, 2014, is considered to have completed one Year of Service under the elapsed-time method, regardless of the actual number of hours worked during that measuring period.
Elapsed-time for eligibility of three months of service
Assume a plan has an eligibility requirement of three months. The three-month period runs from the employee's date of hire to the anniversary of the date of hire three months later. For example, an employee hired July 31, 2014 will complete the three months of elapsed-time on October 31, 2014. The elapsed-time method only requires the employee to be working on the original hire date and on the last date of the eligibility period, provided the period of time absent from the job is less than 12 consecutive months.
Service Spanning Rule
IRS Regulation 1.410(a) presents the service spanning rules for the elapsed-time method. Under the service spanning rules applicable to the elapsed-time method, absences of less then 12 consecutive months are not counted against the employee.
For example, suppose the employee in the example above where the plan had a one-year elapsed-time eligibility requirement, was hired on April 15, 2013, quit on October 26, 2013 but was rehired on January 10, 2014. Because the employee had less than a 12-month absence and was employed on the anniversary date of hire of April 15, 2014, he is considered to have completed one-year-of-service under the elapsed-time method, regardless of the absence and regardless of the actual number of hours worked during that measuring period.
Second example, if the above employee in the plan with the three month elapsed-time eligibility requirement who was hired on July 31, 2014 works until August 23, 2014, then leaves the job but is rehired on September 26, 2014, and is still employed on the three-month anniversary on October 31, 2014; the employee will have completed the three months of elapsed-time eligibility.
Example three, a plan with a one-year-of-service requirement based on the elapsed-time method. An employee is hired November 8, 2013 and works through to September 17, 2014. The employee leaves and is rehired December 8, 2014. Because the employee did not have a 12-consecutive month absence, the employee is considered to have satisfied the elapsed-time one-year-of-service (November 7, 2014) upon rehire in this example, and if an entry date had gone by, the employee would be a participant as of the rehire date.
Note: This service spanning rule may work to the employer's disadvantage in excluding certain categories of workers, such as students, because a period of separation may never occur based on actual hiring practices.
1.410(a)-(7)(a)(3)(vi) Service spanning. Under the elapsed-time method of crediting service, a plan is required to credit periods of service and, under the service spanning rules, certain periods of severance of 12 months or less for purposes of eligibility to participate and vesting. Under the first-service spanning rule, if an employee severs from service as a result of quit, discharge or retirement and then returns to service within 12 months, the period of severance is required to be taken into account. Also, a situation may arise in which an employee is absent from service for any reason other than quit, discharge, retirement or death and during the absence a quit, discharge or retirement occurs. The second-service spanning rule provides in that set of circumstances that a plan is required to take into account the period of time between the severance from service date (i.e., the date of quit, discharge or retirement) and the first anniversary of the date on which the employee was first absent, if the employee returns to service on or before such first anniversary date.
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