Example. A qualified plan computing service by the actual counting of hours provides full and immediate vesting. The plan can not require as a condition of participation that an employee complete 2 consecutive years of service with the employer because the requirement as to consecutive years is not permitted under section 410(a)(5). However, such a plan can require 2 years without a break in service, i.e., 2 years with no intervening years in which the employee fails to complete more than 500 hours of service. Under a plan containing such a participation requirement, the following example illustrates when employees would become eligible to participate.
Year | Hours of service completed | ||
Employee A | Employee B | Employee C | |
1 | 1,000 | 1,000 | 1,000 |
2 | 1,000 | 700 | 500 |
3 | 1,000 | 1,000 | 1,000 |
4 | 1,000 | 1,000 | 700 |
5 | 1,000 | 1,000 | 1,000 |
Note:
Employee A will have satisfied the plan's service requirement at the end of year 2, Employee B at the end of year 3, and Employee C at the end of year 5.
26 C.F.R. §1.410(a)-8T