(a) General statutory provisions--(1) Eligibility to participate and
vesting. Except as otherwise provided in section 202(b) or 203(b)(1) of
the Act and sections 410(a)(5), 411(a)(5) and 411(a)(6) of the Code, all
years of service with the employer or employers maintaining
the plan shall be taken into account for purposes of section 202 of the
Act and section 410 of the Code (relating to minimum eligibility
standards) and section 203 of the Act and section 411(a) of the Code
(relating to minimum vesting standards).
(2) Accrual of benefits. Except as otherwise provided in section
202(b) of the Act and section 410(a)(5) of the Code, all years of
participation under the plan must be taken into account for purposes of
section 204 of the Act and section 411(b) of the Code (relating to
benefit accrual). Section 204(b) of the Act and section 411(b) of the
Code require only that periods of actual participation in the plan
(e.g., covered service) be taken into account for purposes of benefit
accrual.
(b) General rules concerning service to be credited under this
section. Section 210 of the Act and sections 413(c), 414(b), and 414(c)
of the Code provide rules applicable to sections 202, 203, and 204 of
the Act and sections 410, 411(a), and 411(b) of the Code for purposes of
determining who is an ``employer or employers maintaining the plan''
and, accordingly, what service is required to be taken into account in
the case of a plan maintained by more than one employer. Paragraphs (c)
through (e) of this section set forth the rules for determining service
required to be taken into account in the case of a plan or plans
maintained by multiple employers, controlled groups of corporations and
trades or businesses under common control. Note throughout that every
mention of multiple employer plans includes multiemployer plans. See
Sec. 2530.210(c)(3). Paragraph (f) of this section sets forth special
break in service rules for such plans. Paragraph (g) of this section
applies the break in service rules of sections 202(b)(4) and
203(b)(3)(D) of the Act and sections 410(a)(5)(D) and 411(a)(6)(D) of
the Code (rule of parity) to such plans.
(c) Multiple employer plans--(1) Eligibility to participate and
vesting. A multiple employer plan shall be treated as if all maintaining
employers constitute a single employer so long as an employee is
employed in either covered service or contiguous noncovered service.
Accordingly, except as referred to in paragraph (a)(1) and provided in
paragraph (f) of this section, in determining an employee's service for
eligibility to participate and vesting purposes, all covered service
with an employer or employers maintaining the plan and all contiguous
noncovered service with an employer or employers maintaining the plan
shall be taken into account. Thus, for example, if an employee in
service covered under a multiple employer plan leaves covered service
with one employer maintaining the plan and is employed immediately
thereafter in covered service with another employer maintaining the
plan, the plan is required to credit all hours of service with both
employers for purposes of participation and vesting. If an employee
moves from contiguous noncovered to covered service, or from covered
service to contiguous noncovered service, with the same employer, the
plan is required to credit all hours of service with such employer for
purposes of eligibility to participate and vesting.
(2) Benefit accrual. A multiple employer plan shall be treated as if
all maintaining employers constitute a single employer so long as an
employee is employed in covered service. Accordingly, except as referred
to in paragraph (a)(2) and provided in paragraph (f) of this section, in
determining a participant's service for benefit accrual purposes, all
covered service with an employer or employers maintaining the plan shall
be taken into account.
(3) Definitions. (i) For purposes of this section, the term
``multiple employer plan'' shall mean a multiemployer plan as defined in
section 3(37) of the Act and section 414(f) of the Code or a multiple
employer plan within the meaning of sections 413 (b) and (c) of the Code
and the regulations issued thereunder. Notwithstanding the preceding
sentence, a plan maintained solely by members of the same controlled
group of corporations within the meaning of paragraph (d) of this
section or by trades or businesses which are under the common control of
one person or group of persons within the meaning of paragraph (e) of
this section shall not be deemed to be a multiple employer plan for
purposes of this section, and such plan is required to apply the rules
under this section which are applicable
to controlled groups of corporations or commonly controlled trades or
businesses respectively.
(ii) For purposes of this section, the term ``covered service''
shall mean service with an employer or employers maintaining the plan
within a job classification or class of employees covered under the
plan.
(iii) For purposes of this section the term ``noncovered service''
shall mean service with an employer or employers maintaining the plan
which is not covered service.
(iv)(A) General. For purposes of this section noncovered service
shall be deemed ``contiguous'' if (1) the noncovered service precedes or
follows covered service and (2) no quit, discharge, or retirement occurs
between such covered service and noncovered service.
(B) Exception. Notwithstanding the preceding paragraph, in the case
of a controlled group of corporations within the meaning of paragraph
(d) of this section or trades or businesses which are under the common
control of one person or group of persons within the meaning of
paragraph (e) of this section, any transfer of an employee from one
member of the controlled group to another member or from one trade or
business under common control to another trade or business under the
common control of the same person or group of persons shall result in
the period of noncovered service which immediately precedes or follows
such transfer being deemed ``noncontiguous'' for purposes of paragraph
(c) of this section.
Diagram No. 1. (Multiple Employer Plan.)
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Assume for purposes of diagram No. 1 that X and Y are both employers
who are required to contribute to a multiple employer plan and that
neither employer maintains any other plan. Covered service is
represented by the shaded segments of the diagram. After completing 1
year of noncovered service, employee A immediately enters covered
service with X and completes 4 years of covered service. For purposes of
eligibility to participate and vesting, the plan is required to credit
employee A with 5 years of service with employer X because his period of
service with X includes a period of covered service and a period of
contiguous noncovered service. On the other hand, employee B,
immediately after completing 2 years of noncovered service with X,
enters covered service with Y. Because B quit employment with X, his
period of noncovered service with X is not contiguous and, therefore, is
not required to be taken into account. In the case of employee C, the
plan is required to take into account all service with employers X and Y
because employee C is employed in covered service with both employers.
Diagram No. 2. (Multiple Employer.)
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The multiple employer plan rules with respect to noncovered service
are illustrated in diagram No. 2. Assume that X and Y are both employers
who are required to contribute to a multiple employer plan and that
neither employer maintains any other plan. Covered service is
represented by the shaded segments of the diagram. Employee E completed
3 years of service with employer X in covered service and then
immediately entered noncovered service with X. Because E's noncovered
service is contiguous, the plan is required to take into account all
service with X for purposes of eligibility to participate and vesting
under the multiple employer plan. Employee F does not continue to
receive credit; F quit the employment of Y and entered noncovered
service with X.
(d) Controlled groups of corporations. (1) With respect to a plan
maintained by one or more members of a controlled group of corporations
(within the meaning of section 1563(a) of the Code, determined without
regard to sections 1563(a)(4) and (e)(3)(C), all employees of such
corporations shall be treated as employed by a single employer.
(2) Accordingly, except as referred to in paragraph (a)(1) and
provided in paragraph (f) of this section, in determining an employee's
service for eligibility to participate and vesting purposes, all service
with any employer which is a member of the controlled group of
corporations shall be taken into account. Except as referred to in
paragraph (a)(2) and provided in paragraph (f) of this section, in
determining a participant's service for benefit accrual purposes, all
service during periods of participation covered under the plan with any
employer which is a member of the controlled group of corporations shall
be taken into account.
(e) Commonly controlled trades or businesses. With respect to a plan
maintained only by one or more trades or businesses (whether or not
incorporated) which are under common control within the meaning of
section 414(c) of the Code and the regulations issued thereunder, all
employees of such trades or businesses shall be treated as employed by a
single employer. Accordingly, except as referred to in paragraph (a)(1)
and provided in paragraph (f) of this section, in determining an
employee's service for eligibility to participate and vesting purposes,
all service with any employer which is under common control shall be
taken into account. Except as referred to in paragraph (a)(2) and
provided in paragraph (f) of this section, in determining a
participant's service for benefit accrual purposes, all service during
periods of participation covered under the plan with any employer which
is under common control shall be taken into account.
Diagram No. 3. (Controlled group or commonly controlled trade or
business.)
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Assume for purposes of diagram No. 3 that X and Y are either members
of the same controlled group of corporations or trades or businesses
which are under the same common control. The dotted segments of the
diagram represent plan coverage under plans separately maintained by X
and Y. Neither employer maintains any other plans. Because A1, B1, C1,
and D1 have their service with X and Y treated as if X and Y were a
single employer, the plans are required to take into account all service
with X and Y for eligibility to participate and vesting purposes.
(f) Special break in service rules. (1) In addition to service which
may be disregarded under the statutory provisions referred to in
paragraph (a) of this section, a multiple employer plan may disregard
noncontiguous non- covered service.
(2) In the case of a plan maintained solely by one or more members
of a controlled group of corporations or one or more trades or
businesses which are under common control, if one of the maintaining
employers is also a participating employer in a multiple employer plan
which includes other employers which are not members of the controlled
group or commonly controlled trades or businesses, service with such
other employer maintaining the multiple employer plan may be disregarded
by the controlled group or commonly controlled plan.
Diagram No. 4. (Break in Service Rules.)
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Diagram No. 4 illustrates the break in service rules of paragraph
(f) of this section. Assume for purposes of diagram No. 4 that employer
Z is controlled by employer X but employer Y's only relation to X and Z
is that X, Y, and Z are required to contribute to a multiple employer
plan. The multiple employer plan, represented by the shaded segments of
the diagram, provides for 100 percent vesting after 10 years. X, Y, and
Z maintain no other plans.
Employee G completed 5 years of covered service with employer Y, and
then moved to noncovered service with employer Z. G's noncovered service
is noncontiguous (see employee F in diagram No. 2 above), and such
service may be disregarded for purposes of the multiple employer plan
under the rule in paragraph (f)(1).
Employee H completed 2 years of covered service with employer Y and
then entered
covered service with employer X for 1 year. The multiple employer plan
is required to credit H with 3 years of service. H then entered
noncovered service with employer Z. H's noncovered service is
noncontiguous (see employee F in diagram No. 2 above), and such service
may be disregarded for purposes of the multiple employer plan under the
rule in paragraph (f)(1).
(g) Rule of parity. For purposes of sections 202(b)(4) and
203(b)(3)(D) of the Act and sections 410(a)(5)(D) and 411(a)(6)(D) of
the Code, in the case of an employee who is a nonvested participant in
employer-derived accrued benefits at the time he incurs a 1-year break
in service, years of service completed by such employee before such
break are not required to be taken into account if at such time he
incurs consecutive 1-year breaks in service which equal or exceed the
aggregate number of years of service before such breaks. This is so even
though the period of noncontiguous noncovered service with an employer
or employers maintaining the plan may subsequently be deemed contiguous
as the result of the employee entering covered service with the same
employer maintaining the plan and, consequently, such plan may be
required to credit such service.
Diagram No. 5. (Rule of parity)
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Assume for purposes of diagram No. 5 that X and Y are both employers
who are required to contribute to a multiple employer plan which
contains a provision applying the rule of parity. Covered service is
represented by the shaded segments of the diagram. The plan has 100%
vesting after 10 years. X and Y maintain no other plan.
The multiple employer plan credited employee I with 4 years of
service with X when he quit employment with X and entered noncovered
service with Y. As a result of 4 years of noncontiguous noncovered
service with Y, employee I incurred 4 consecutive 1-year breaks in
service, so that the multiple employer plan may disregard his prior
service (i.e., the 4 years of service with X).
When employee I entered covered service with Y (as a ``new
employee''), his 4 years of noncontiguous service with Y became
contiguous for purposes of the multiple employer plan. Consequently,
after 1 year of covered service with Y, the plan is required to credit
employee I with 5 years of service.
(h) Example. Under section 203(b)(1)(C) of the Act and section
411(a)(4)(C) of the Code, service with an employer prior to such
employer's adoption of the plan need not be taken into account. The
following example demonstrates that this rule applies even if an
employee is employed in contiguous noncovered service. The example is
applicable to any plan subject to the rules of this section. However,
for purposes of clarity, the example assumes that X and Y are required
to contribute to a multiple employer plan.
Assume that employee D completed 3 years of covered service with
employer Y as of the date X adopts the plan. Immediately after X's
adoption of the plan D left covered service with Y and D entered covered
service with X. His prior covered service with Y is required to be
counted, and D remains a participant.
On the other hand, if D had entered service with X any time prior to
X's adoption of the plan and subsequently was covered by the plan when X
adopted it, his prior service with Y must also be counted, unless such
service may be disregarded under the break in service rules because the
period of service with X before X's adoption of the plan was equal to or
greater than his prior service with Y. For example, if X adopted the
plan three years after D began employment with X, and consequently after
D had incurred 3 consecutive 1-year breaks in service, his prior service
with Y could be disregarded.
(i) Comprehensive diagram. (No. 6)
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Assume for purposes of diagram No. 6 that employer Z is controlled
by employer X within the meaning of paragraph (d) but employer Y's only
relation to X and Z is that X,
Y and Z are required to contribute to a multiple employer plan. The
shaded segments represent coverage under the multiple employer plan
which contains a provision applying the rule of parity. The dotted
segment represents a separate plan maintained by Z. Both plans have 100%
vesting after 10 years.
Employee J completed 3 years of service with employer X in covered
service with the multiple employer plan. J then entered non- covered
service with Y and remained with Y for 1 year, and thereby incurred a 1-
year break in service under the multiple employer plan. J then entered
covered service with employer Y, thereby causing the noncovered service
with Y to become contiguous. Covered service with X and contiguous
noncovered and covered service with Y must be taken into account for
purposes of the multiple employer plan; accordingly, that plan is
required to credit J with a total of 5 years of service.
J then left service with Y and entered noncovered service (with
respect to the multiple employer plan) with Z. J remained in noncovered
service with Z (with respect to the multiple employer plan) for 5 years
and thereby incurred 5 consecutive 1-year break in service for purposes
of the multiple employer plan. Consequently, the prior service with X
and Y may be disregarded for purposes of the multiple employer plan.
J then entered covered service under the multiple employer plan with
Z and completed 1 year of service. Because the 5 years of noncovered
service with Z is contiguous with the 1 year of covered service, the
multiple employer plan is now required to credit J with 6 years of
service for purposes of eligibility to participate and vesting.
For purposes of Z's controlled group plan (i.e., dotted segment),
employee J is entitled to receive credit for 9 years of service. The 3
years of service with X, a member of the controlled group, may not be
disregarded under the rule of parity because J incurred only 2
consecutive 1-year breaks in service while employed with Y. When J
entered service with Z covered under Z's controlled group plan, the 3
years of service with X were still required to be credited by the
controlled group plan. In addition, J must receive credit for the 5
years of service with Z covered under the controlled group plan.
Finally, when J moved to service with Z covered under the multiple
employer plan the controlled group plan was required to credit J with an
additional year of service.
