When
am I eligible to participate in my employer's retirement
plan?
You
may participate as soon as you meet the eligibility
requirements your employer established at the time the
retirement plan was adopted. Eligibility requirements are
generally based upon a participant's age and years of
service with your employer. You will receive an email
with the necessary informational enrollment materials
attached, which will notify you that you have met your
plan's eligibility requirements. You may then enroll
in the plan on the first allowable entry date, which
is normally the first of the following month. Some company
plans may allow for entry only two times per year, and
you should check with your company's benefits administrator
to verify the allowable entry dates for your plan. [Top]
What
is the purpose for hours of service regarding retirement
plans?
Plan
documents typically credit vesting, eligibility and
benefit accruals based on 12-month periods during which
the participant is credited with at least 1,000 hours
of service (i.e. a credited year of service). Other
plans use an elapsed time counting computation that
basically ignores periods from date-of-hire to date-of-separation.
When a plan conditions eligibility, vesting and the
right to receive contributions on the employee being
credited with a year of service, the document will (1)
identify the computation period over which the service
hours are measured, and (2) specify a minimum number
of hours within the computation period (generally no
more than 1,000 hours may be required to be credited
to have a year of service). In most plans, the computation
period for crediting a year of service for vesting,
eligibility, and benefits is different. Some use plan
years, calendar years or date of hire years.
An
hour of service is determined under Dept. of Labor regulations
and generally includes:
1.
Any hour for which the individual is paid or entitled
to payment for the performance of duties,
2. Each hour for which an employee is paid or entitled
to payment on account of a period of time during which
no duties are performed (but not more than 501 hours),
and
3. Each hour for which the employee is available to
receive or has received back pay. [DOL §2530.200b-2(a).]
When back pay is awarded, the associated hours of service
are credited for the period to which the hours pertain.
[DOL §2530.200b-2(c)(4).]
These hours of service rules apply for Tax Code purposes,
too (e.g., vesting years of service)!
[Top]
What
is vesting?
The
process by which a plan participants earns the right
to keep his or her employer-financed accounts upon termination
of employment. Note that the employees own contributions
are always 100% vested - vesting schedules only apply
to employer derived funds.
Each plan has a vesting schedule that defines the percentage
of the account that the participant keeps. The remainder
is forfeited by the participant and reverts back to
the Plan (not the employer). This "forfeiture"
is then "reallocated" to the remaining participants
or used to finance future matching contributions for
the employer.
For
example, if the vesting schedule on the employer match
is "20% per year of service," an employee
who quits after three years of service will keep 100%
of his or her own contributions (plus investment gains
or losses) but only 60% of the employer matching account.
[Top]
How
are my years of service determined in regard to vesting
in a retirement plan?
Many
employers who make matching contributions to their workers'
retirement plans require employees to work a specified number
of years before they're entitled to collect the money
that the employer has contributed. This process is called
vesting and companies base their vesting on the worker's
years of service to the company. By law, you must be
fully vested, in other words, be entitled to all the
funds your company has contributed to your retirement plan-after
you fulfill the required years of service applicable
to your plan. Your employer can use one of two following
methods to determine your years of service.
>
In the first, your years of service are determined by
the number of hours you actually worked in a 12-month
period. You must be credited with a year's service for
any 12-month period in which you worked at least 1,000
hours. This allows you earn a year of service in less
than 12 months if you reach the required 1,000 hours
prior to 12 calendar months elapsing.
>
The second way to calculate years of service is the
elapsed-time method. Your employer counts 12 months
per year from the date you were hired to the date you
leave, regardless of how many hours you worked.
It
is important to note that many companies use both methods:
the first is often used to determine your eligibility
to participate in the plan, and the second is used to
decide when you're fully vested in the company's contributions
to the plan. [Top]
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