A Common Error in Administering Match Eligibility Requirements
Experts from Groom Law Group and Cammack Retirement Group answer questions concerning retirement plan administration and regulations.
“We are an Employee Retirement Income Security Act (ERISA) 403(b) plan sponsor that requires employees to complete a year of 1,000 hours service to receive the plan’s employer matching contribution. Can we allow employees to receive the match once they have completed 1,000 hours of service, or must they wait the full 12 months? Our plan has an entry date for employer contribution purposes of the first day of the first pay period following the completion of the service requirement.”
Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:
You COULD design your plan so that an employee is eligible after completion of 1,000 hours regardless of whether they have completed a full year of service, but your plan does not seem to be designed that way. In your plan, where a year of service is required (during which the employee reaches 1,000 hours of service), the 12 months of service must indeed be completed, so you cannot allow employees to receive the employer match until they have completed both the 12 months of service AND the 1,000-hour requirement.
Unfortunately, your question brings to light a common error that the Experts see in plans with such a service requirement; instead of the plan’s operating system being programmed to allow an employee to receive the employer match after the completion of both 1,000 hours AND a year of service (which can be tricky to program), the system instead allows the employee to receive the match upon the plan’s first entry date after completing 1,000 hours, regardless of whether the full twelve months was completed. This then becomes an operational defect.
For this reason and others involving the complexity of counting hours, particularly for part-time employees, many plans have opted to use alternative methods of calculating services, such as equivalencies or the elapsed time method. Regardless of method, plan sponsors should confirm that their operating systems are programmed correctly so that the actual operation of the plan follows its written terms.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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