(a) Computation period. (1) Under sections 202(b) and 203(b)(3) of
the Act and sections 410(a)(5) and 411(a)(6) of the Code, a plan may
provide that an employee incurs a one-year break in service for a
computation period or periods if the employee fails to complete more
than 500 hours of service or, in the case of any maritime industry, 62
days of service in such period or periods.
(2) For purposes of section 202(b) of the Act and section 410(a)(5)
of the Code, relating to one-year breaks in service for eligibility to
participate, in determining whether an employee incurs a one-year break
in service, a plan shall use the eligibility computation period
designated under Sec. 2530.202-2(b) for measuring years of service after
the intital eligibility computation period.
(3) For purposes of section 203(b)(3) of the Act and section
411(a)(6) of the Code, relating to breaks in service for purposes of
vesting, in determining whether an employee incurs a one-year break in
service, a plan shall use the vesting computation period designated
under Sec. 2530.203-2(a).
(4) For rules regarding service which is not required to be taken
into account for purposes of benefit accrual, see Sec. 2530.204-1(b)(1).
(b) Service following a break in service. (1) For purposes of
section 202(b)(3) of the Act and section 410(a)(5)(C) of the Code
(relating to completion of a year of service for eligibility to
participate after a one-year break in service), the following rules
shall be applied in measuring completion of a year of service upon an
employee's return after a one-year break in service:
(i) In the case of a plan which, after the initial eligibility
computation period, measures years of service for purposes of
eligibility to participate on the basis of eligibility computation
periods beginning on anniversaries of an employee's employment
commencement date, as permitted under Sec. 2530.202-2(b)(1), the plan
shall use the 12-consecutive-month period beginning on an employee's
reemployment commencement date (as defined in paragraphs (b)(1)(iii) and
(iv) of this section) and, where necessary, subsequent 12-consecutive-
month periods beginning on anniversaries of the reemployment of
commencement date.
(ii) In the case of a plan which, after the initial eligibility
computation period, measures years of service for eligibility to
participate on the basis of plan years beginning with the plan year
which includes the first anniversary of the initial eligibility
computation period, as permitted under Sec. 2530.202-2(b)(2), the plan
shall use the 12-consecutive-month period beginning on an employee's
reemployment commencement date (as defined in paragraphs (b)(1)(iii) and
(iv) of this section and, where necessary, plan years beginning with the
plan year which includes the first anniversary of the employee's
reemployment commencement date.
(iii) Except as provided in paragraph (b)(1)(iv) of this section, an
employee's reemployment commencement date shall be the first day on
which the employee is entitled to be credited with an hour of service
described in Sec. 2530.200b-2(a)(1) after the first eligibility
computation period in which the employee incurs a one-year break in
service following an eligibility computation period in which the
employee is credited with more than 500 hours of service.
(iv) In the case of an employee who is credited with no hours of
service in an eligibility computation period beginning after the
employee's reemployment commencement date established under paragraph
(b)(1)(iii) of this section, the employee shall be treated as having a
new reemployment commencement date as of the first day on which the
employee is entitled to be credited with an hour of service described in
Sec. 2530.200b-2(a)(1) after such eligibility computation period.
(2) For purposes of section 203(b)(3)(B) of the Act and section
411(a)(6)(B) of the Code (relating to the completion of a year of
service for vesting following a one-year break in service), in measuring
completion of a year of service upon an employee's return after a one-
year break in service, a plan shall use the vesting computation period
designated under Sec. 2530.203-2. In the case of a plan which designates
a separate vesting computation period for each employee (rather than one
vesting computation period for all employees), when an employee who has
incurred a one-year break in service later completes an initial hour of
service, the plan may change the employee's vesting computation period
to a 12-consecutive-month period beginning on the day on which such
initial hour of service is completed, provided that the plan follows the
rules for changing the vesting computation period set forth in
Sec. 2530.203-2(c)(1). Specifically, such a plan must ensure that as a
result of the change of the vesting computation period of an employee
who has incurred a one-year break in service to the 12-month period
beginning on the first day on which the employee later completes an
initial hour of service, the employee's vested percentage of the accrued
benefit derived from employer contributions will not be less on any date
after the change than such nonforfeitable percentage would be in the
absence of the change. As under Sec. 2530.203-2(c)(1), the plan will be
deemed to satisfy the requirement of that paragraph if, in the case of
an employee who has incurred a one-year break in service, the vesting
computation period beginning on the day on which the employee completes
an hour of service after the one-year break in service begins before the
end of the last vesting computation period established before the change
of vesting computation periods and, if the employee is credited with
1000 hours of service in both such vesting computation periods, the
employee is credited with 2 years of service for purposes of vesting.
(3) For purposes of section 203(b)(3)(B) of the Act and section
411(a)(6)(B) of the Code (relating to the completion of
a year of service for vesting following a one-year break in service), in
measuring completion of a year of service upon an employee's return
after a one-year break in service, a plan shall use the vesting
computation period designated under Sec. 2530.203-2. In the case of a
plan which designates a separate vesting computation period for each
employee (rather than one vesting computation period for all employees),
when an employee who has incurred a one-year break in service later
completes an initial hour of service, the plan may change the employee's
vesting computation period to a 12-consecutive-month period beginning on
the day on which such initial hour of service is completed, provided
that the plan follows the rules for changing the vesting computation
period set forth in Sec. 2530.203-2(c)(1).
(4) Examples. (i) Employer X maintains a pension plan. The plan uses
a calendar year vesting computation period and plan year. As conditions
for participation, the plan requires that an employee of X complete one
year of service and attain age 25, and, in accordance with
Sec. 2530.202-2(b)(2), provides that after the initial eligibility
computation period, plan years will be used as eligibility computation
periods, beginning with the plan year which includes the first
anniversary of an employee's employment commencement date. Thus, under
paragraph (a)(2) of this section, the plan must use plan years in
measuring one-year breaks in service for eligibility to participate. The
plan provides that an employee acquires a nonforfeitable right to 100
percent of the accrued benefit derived from employer contributions upon
completion of 10 years of service. Under the plan, for purposes of
vesting, years of service completed before an employee attains age 22
are not taken into account. The plan also provides that if an employee
has incurred a one-year break in service, in computing the employee's
period of service for eligibility to participate, years of service
before such break will not be taken into account until the employee has
completed a year of service with X after the employee's return. The plan
further provides that in the case of an employee who has no vested right
to an accrued benefit derived from employer contributions, years of
service for purposes of eligibility to participate or vesting before a
one-year break in service for eligibility or vesting (as the case may
be) shall not be required to be taken into account if the number of
consecutive one-year breaks in service equals or exceeds the aggregate
number of such years of service before such consecutive one-year breaks
in service.
(A) Employee A commences employment with X on January 1, 1976 at age
30 and completes a year of service for eligibility to participate and
vesting in both the 1976 and 1977 computation periods. A becomes a
participant in the plan on January 1, 1977. A terminates employment with
X on November 3, 1977, after completing 1,000 hours of service;
completes no hours of service in 1978, incurring a one-year break in
service; and is reemployed by X on June 1, 1979. A completes 800 hours
of service during the remainder of 1979 and 600 hours of service from
January 1, 1980 through May 31, 1980. Under paragraph (b)(1)(iii) of
this section, A's reemployment commencement date is June 1, 1979. By
June 1, 1980, A has completed a year of service during the eligibility
computation period following his return, and receives credit for his
pre-break service to the extent required under section 202 of the Act
and section 410 of the Code and the regulations thereunder. The plan is
not, however, required to credit A with a year of service for vesting
during 1979 because he failed to complete 1,000 hours of service during
that vesting computation period. If A completes 400 or more hours of
service from June 1, 1980 to December 31, 1980, then A will be credited
with one year of service for vesting purposes for the 1980 vesting
computation period.
(B) Employee B was born on February 22, 1955 and commenced
employment with Employer X on July 1, 1975. B is credited with a year of
service for eligibility to participate in the plan for the eligibility
computation period beginning on his employment commencement date (July
1, 1975) and a year of service for eligibility and vesting for the 1976
and 1977 plan years. As of the end of the 1977 plan year, B is credited
with 3 years of service for purposes of
eligibility to participate, but only one year of service for purposes of
vesting. Not having attained age 25, however, B is not admitted to
participation in the plan upon completion of his first year of service
with X. In the 1978 plan year, B fails to be credited with 500 hours of
service, thereby incurring a one-year break in service. As a result of
B's one-year break in service in the 1978 plan year, the year of service
for vesting which was earlier credited to B for the 1977 plan year is
disregarded because the one-year break in service equals the one year of
service credited to B before the one-year break in service. After the
end of the 1978 plan year, B does not perform an hour of service with X
until February 3, 1979. February 3, 1979, therefore, is B's reemployment
commencement date under paragraph (b)(1)(i) of this section. B fails to
be credited with 1,000 hours of service in the first eligibility
computation period beginning on February 3, 1979, and also for the
vesting computation period beginning January 1, 1979. Because, in
accordance with Sec. 2530.202-2(b)(2), the plan provides that after the
initial eligibility computation period, plan years will be used as
eligibility computation periods, under paragraph (b)(1)(ii) of this
section the plan must provide that, in measuring completion of a year of
service for eligibility to participate after a one-year break in
service, plan years beginning with the plan year which includes an
employee's reemployment commencement date will be used. B is credited
with 1,000 hours of service for the plan year beginning on January 1,
1980 and is therefore credited with a year of service for the 1980 plan
year. Under section 202(b)(3) of the Act and section 410(a)(5)(C) of the
Code, as a consequence of B's completion of a year of service in the
1980 plan year, B's service before his one-year break in service in the
1978 plan year must be taken into account for eligibility purposes. As
conditions of participation, the plan requires that an employee attain
age 25 and complete one year of service. Upon his completion of a year
of service for the 1980 plan year, B is deemed to have met the plan's
participation requirements as of February 22, 1980, his twenty-fifth
birthday, because the year of service completed by B in B's eligibility
computation period beginning on January 1, 1976 is taken into account
for eligibility purposes.
(ii) Employer Y maintains a defined benefit pension plan. The plan
provides that an employee acquires a nonforfeitable right to 100 percent
of the employee's accrued benefit derived from employer contributions
upon completion of 10 years of service. As conditions for participation,
the plan requires that an employee of Y complete one year of service and
provides that if an employee has incurred a one-year break in service,
in computing the employee's period of service for eligibility to
participate, years of service before such break will not be taken into
account until the employee has completed a year of service with Y after
the employee's return. In accordance with Sec. 2530.202-2(b)(1), the
plan provides that after the initial eligibility computation period,
eligibility computation periods beginning on anniversaries of an
employee's employment commencement date will be used. Thus, under
paragraph (a)(1) of this section, the plan must use computation periods
beginning on anniversaries of the employee's employment commencement
date in measuring one-year breaks in service. Employee C's employment
commencement date with Y is February 1, 1975, C is credited with a year
of service for eligibility to participate in the eligibility computation
period beginning on C's employment commencement date and meets the
plan's eligibility requirements as of February 1, 1976. In accordance
with the provisions of the plan, C commences participation in the plan
as of July 1, 1976. C is thereafter credited with a year of service for
eligibility to participate in each of the eligibility computation
periods beginning on anniversaries of C's employment commencement date
(February 1) in 1976, 1977, 1978 and 1979. Thus, as of February 1, 1980,
C is credited with 5 years of service for eligibility to participate. In
the eligibility computation period beginning on February 1, 1980, C
fails to be credited with more than 500 hours of service and therefore
incurs a one-year break in service. In the eligibility computation
period beginning on February 1, 1981, C
is not credited with an hour of service for the performance of duties
until March 1, 1981. Under paragraph (b)(1)(iii) of this section, March
1, 1981 is C's reemployment commencement date. C terminates employment
with Y on May 1, 1981 and fails to be credited with 1000 hours of
service in the 12-consecutive-month period beginning on March 1, 1981,
or with more than 500 hours of service in the eligibility computation
period beginning on February 1, 1981, thereby incurring a second one-
year break in service for eligibility to participate. C is credited with
no hours of service in the eligibility computation period beginning on
February 1, 1982, thereby incurring a third one-year break in service
for eligibility to participate, and is likewise credited with no hours
of service in the 12-consecutive-month period beginning on March 1,
1982, the anniversary of B's reemployment commencement date. Under
paragraph (b)(1)(iv) of this section, C must therefore be treated as
having a new reemployment commencement date as of the first day
following the close of the eligibility computation period beginning on
February 1, 1982. On January 1, 1984 (before the end of the eligibility
computation period beginning February 1, 1983) C is rehired by Y and is
credited with an hour of service for the performance of duties. C is
therefore treated as having a new reemployment commencement date January
1, 1984. C fails to be credited with more than 500 hours of service in
the eligibility computation period beginning on February 1, 1983,
thereby incurring a fourth one-year break in service, and fails to be
credited with 1000 hours of service in the 12-consecutive-month period
beginning on March 1, 1983, the anniversary of C's original reemployment
commencement date. However, in the 12-consecutive-month period beginning
on January 1, 1984, C is credited with 1000 hours of service, thus
meeting the plan's requirement that an employee who has incurred a one-
year break in service for eligibility to participate must complete a
year of service upon the employee's return in order for years of service
before the one-year break in service to be taken into account for
purposes of eligibility. Because C's years of service completed before
C's first one-year break in service must be taken into account under
section 202(b) of the Act and section 410(b)(5) of the Code for purposes
of eligibility to participate, under Sec. 2530.204-2(a)(2) the period
beginning on July 1, 1976 (the earliest date on which C was a
participant) and extending until January 31, 1980 (the last day before
C's first one-year break in service) must be taken into account for
purposes of benefit accrual.
(c) Prior service for eligibility to participate. For rules relating
to computing service preceding a break in service for the purpose of
eligibility to participate in the plan, see Sec. 2530.202-2(c).
(d) Prior service for vesting. For rules relating to computing
service preceding a break in service for the purpose of credit toward
vesting, see Sec. 2530.203-2(d).
