PLANSPONSOR - December 2018/January 2019 - 16

Upfront
When a
Part-Timer
Is Hired
Full Time
WHEN an employer offers a full-time job
to a part-time or seasonal employee, this
person needs to get treated somewhat
differently than other new hires.
As to enrollment materials and
disclosures about the retirement plan,
the employee gets the same paperwork
as everyone else. But, when it comes to
calculating eligibility and vesting, suggests
Linda Way-Smith, of counsel at Morgan,
Lewis & Bockius LLP, it would be hoped the
employer has kept records of past service.
" Good recordkeeping is always critical, "
Way-Smith says. " Employers have
obligations to keep records of employment
for other laws such as minimum wage and
overtime regulations as well. The general
rule is to keep information for at least six
years, but actually it varies. "
" We keep participant-level data virtually
forever, " says Tim Chisholm, vice
president and benefits consultant for the
Fidelity Benefits Consulting team. " One
could argue that, if a person comes back
and says, 'I worked for you in 1988 and
think I earned service under the retirement
plan, and you didn't put me in,' the
plan sponsors would need records to prove
that. It is more likely for pensions, but also
could happen for profit-sharing plans. "
Eligibility and Vesting
The employee's date of birth and date
of hire-that is, the date he first started
working part time or seasonally-is needed
to determine eligibility, Chisholm says. In
many cases, a record of the actual hours
the employee worked while a seasonal or
part-time employee is also needed. " Some
plans use actual hours, and some use
equivalencies such as elapsed time, which
essentially means if an employee works
one day out of a month, he gets credit for
that month, " he explains.
According to Way-Smith, if the plan
uses actual hours but the plan sponsor
has not kept records of hours worked,
equivalencies are allowed by law.
However, it is important to understand
the provisions in the plan document for
eligibility and vesting, Chisholm says. If an
employee must be at least age 21 and have
a year of service-usually 1,000 hours-to
be eligible for the plan, it is possible that a
college student who worked for the sponsor
during the summers and is hired full time
upon graduation would be eligible for the
plan immediately, for example.
Both Chisholm and Way-Smith point
out that, for most plans, the initial eligibility
computation period as spelled out
in the plan document is from date of hire
to anniversary of date of hire. Chisholm
says, for many plans, this is changed after
the initial year to the plan year.
Way-Smith says, " While many
employers exclude student, intern or
seasonal employees from participating in
their retirement plans, summer employment
counts toward the satisfaction of any
14 PLANSPONSOR.com December 2018-January 2019
Art by Wren McDonald
eligibility service requirement for retirement
plan participation.
" Under Internal Revenue Code [IRC]
Section 410(a)(1)(A)(ii), " she continues, " a
plan may not require more than one year
of eligibility service for participation.
Employees accrue eligibility credit for all
service during the eligibility computation
period, even time worked before they were
in a class of employees entitled to retirement
benefits. An employee's eligibility
service also includes time worked with
any related employers, such as members
of a controlled group under Code Section
414(c) or an affiliated service group under
Section 414(m). "
The computation period for vesting
service is defined by most plans as the
plan year. According to Chisholm, most
plans require 1,000 hours for this, as well.
So, a part-time or seasonal employee may
already have past vesting service when he
is hired full time and becomes eligible to
participate in the retirement plan.
" Some sponsors use their recordkeeper
to determine eligibility and vesting,
and others have their own system, " he says.
" Some payroll systems are programmed to
calculate eligibility and provide the recordkeeper
with information once an employee
becomes eligible. "
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PLANSPONSOR - December 2018/January 2019

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