(a) Designation of accrual computation periods. A plan may designate
any 12-consecutive-month period as the accrual computation period except
that the period so designated must apply equally to all participants.
This requirement may be satisfied even though the actual time periods
are not the same for all participants. For example, the accrual
computation period may be designated as the vesting computation period,
the plan year, or the 12-consecutive-month period beginning on either of
two semi-annual dates designated for entry to participation under a
plan.
(b) Participation prior to effective date. For purposes of applying
the accrual rules of section 204(b)(1)(D) of the Act and section
411(b)(1)(D) of the Code (relating to accrual requirements for defined
benefit plans for periods prior to the effective date of those
sections), all service from the date of participation in the plan as
determined in accordance with applicable plan provisions, shall be taken
into account in determining an employee's period of service. When the
plan documents do not provide a definite means for determining the date
of commencement of participation, the date of commencement of employment
covered under the plan during the period that the employer maintained
the plan shall be presumed to be the date of commencement of
participation in the plan. The plan may rebut this presumption by
demonstrating from circumstances surrounding the operation of the plan,
such as the date of commencement of mandatory employee contributions,
that participation actually began on a later date.
(c) Partial year of participation. (1) Under section 204(b)(3)(C) of
the Act and section 411(b)(3)(C) of the Code, in calculating an
employee's period of service for purposes of benefit accrual, a plan is
not required to take into account a 12-consecutive-month period during
which the employee's service is less than 1,000 hours of service. In
measuring an employee's service for purposes of section 204(b)(3)(C) of
the Act and section 411(b)(3)(C) of the Code, a plan shall use the
accrual computation period designated under paragraph (a) of this
section. Under section 204(b)(3)(B) of the Act and section 411(b)(3)(B)
of the Code, in the case of an employee whose service is not less than
1,000 hours of service during an accrual computation period, the
calculation of such employee's period of service will not be treated as
made on a reasonable and consistent basis unless service during such
computation period is taken into account. To the extent that the
employee's service during the accrual computation period is less than
the service required under the plan for a full year of participation,
the employee must be credited with a partial year of participation
equivalent to no less than a ratable portion of a full year of
participation.
(2) For purposes of calculating the portion of a full year of
participation to be credited to an employee whose service during a
computation period is not less than 1,000 hours of service but is less
than service required for a full year of participation in the plan, the
plan may credit the employee with a greater portion of a full year of
participation than a ratable portion, or may credit an employee with a
full year of participation even though the employee's service is less
than the service required for a full year of participation, provided
that such crediting is reasonable and is consistent for all employees
within the same job classifications, reasonably established.
(3) In the case of an employee who commences participation in a plan
(or recommences participation in the plan upon the employee's return
after one or more 1-year breaks in service) on a date other than the
first day of an applicable accrual computation period, all hours of
service required to be credited to the employee during the entire
accrual computation period, including hours of service credited to the
employee for the portion of the computation period before the date on
which
the employee commences (or recommences) participation, shall be taken
into account in determining whether the employee has 1,000 or more hours
of service for purposes of section 204(b)(3)(C) of the Act and section
411(b)3)(C) of the Code. If such employee's service is not less than
1,000 hours in such accrual computation period, the employee must be
credited with a partial year of participation which is equivalent to no
less than a ratable portion of a full year of participation for service
credited to the employee for the portion of the computation period after
the date of commencement (or recommencement) of participation.
(4) Examples. The following are examples of reasonable and
consistent methods for crediting partial years of participation:
(i) A plan requires 2,000 hours of service for a full year of
participation. An employee who is credited during a computation period
with no less than 1,000 hours of service but less than 2,000 hours of
service is credited with a partial year of participation equal to a
portion of a full year of participation determined by dividing the
number of hours of service credited to the employee by 2,000.
(ii) A plan requires 2,000 hours of service for a full year of
participation. The plan credits service in an accrual computation period
in accordance with the following table:
------------------------------------------------------------------------
Percentage of
full year of
Hours of service credited participation
credited
------------------------------------------------------------------------
1000................................................. 50
1001 to 1200......................................... 60
1201 to 1400......................................... 70
1401 to 1600......................................... 80
1601 to 1800......................................... 90
1801 and above....................................... 100
------------------------------------------------------------------------
Under this method of crediting partial years of participation, each
employee who is credited with not less than 1,000 hours of service is
credited with at least a ratable portion of a full year of
participation.
(iii) A plan provides that each employee who is credited with at
least 1,000 hours of service in an accrual computation period must
receive credit for at least a partial year of participation for that
computation period. For full accrual, however, the plan requires that an
employee must be credited with a specified number of hours worked;
employees who meet the 1,000 hours of service requirement but who are
not credited with the specified number of hours worked required for a
full year of participation are credited with a partial year of
participation on a prorata basis. For example, if the plan requires
1,500 hours worked for full accrual, an employee with 1,500 hours worked
would be credited with full accrual, but an employee with 1,000 hours
worked and 500 other hours of service would be credited with \2/3\ of
full accrual. The plan's method of crediting service for accrual
purposes is consistent with the requirements of this paragraph. It
should be noted, however, that use of hours worked as a basis for
prorating benefit accrual may result in discrimination prohibited under
section 401(a)(4) of the Code.
(iv) Employee A is employed on June 1, 1980 in service covered by a
plan with a calendar year accrual computation period, and which requires
1,800 hours of service for a full accrual. Employee A completes 500
hours from June 1, 1980 to December 31, 1980, and completes 100 hours
per month in each month during 1981. A is admitted to participation on
July 1, 1981. A is credited with 1,200 hours of service for the accrual
computation period beginning January 1, 1981. Under the rules set forth
in paragraph (c)(3) of this section, A is required to be credited with
not less than one-third of a full accrual (600 hours divided by 1,800
hours).
(d) Prohibited double proration. (1) In the case of a defined
benefit plan that (i) defines benefits on a basis which has the effect
of prorating benefits to reflect less than full-time employment or less
than maximum compensation and (ii) does not adjust less-than-full-time
service to reflect the equivalent of full-time hours or compensation (as
the case may be), the plan may not further prorate benefit accrual under
section 204(b)(3)(B) of the Act and section 411(b)(3)(B) of the Code by
crediting less than full years of participation, as would otherwise be
permitted under paragraph (c) of this section. These plans must credit,
except when service may be disregarded under section 204(b)(3)(C) of the
Act and section
411(b)(3)(C) of the Code (relating to less than 1,000 hours of service),
less-than-full-time employees with a full year of participation for the
purpose of accrual of benefits.
(2) Examples. (i) A plan's defined benefit formula provides that the
annual retirement benefit shall be 2 percent of the average compensation
in all years of participation multiplied by the number of years of
participation. Employee A is a full-time employee who has completed
2,000 hours during each of 20 accrual computation periods. A's average
hourly rate was $5 an hour. Thus, A's average compensation for each year
during participation in the plan is $10,000 ($5 per hour multiplied by
2,000 hours). If the plan states that a full year of participation is
2,000 hours, then A's annual retirement benefits, if he retired at that
time, would be $4,000 ($10,000 per year of compensation x .02 x 20
years of participation). Employee B, however, is a part-time employee
who completes 1,000 hours of service during each of 20 accrual
computation periods. Like A, B's average hourly rate is $5 per hour. B's
average compensation for his total years of participation is $5,000 ($5
per hour multiplied by 1,000 hours). Thus, the plan's benefit formula,
by basing benefits on an employee's average compensation in all years of
participation, in effect prorates benefits to reflect the fact that
during B's participation in the plan, he has earned less than the
maximum compensation that a full-time employee paid at the same rate
could earn during the same period of participation in the plan. Under
the rule of subparagraph (1), therefore, the plan is not permitted to
prorate B's years of participation to reflect B's less than full-time
employment throughout his participation in the plan. Therefore, B's
annual retirement benefit would be $2,000 ($5,000 average compensation
x .02 x 20 years of participation). (If double proration were permitted,
then B's total years of participation would be only 10 since he would be
credited with only one-half of a year of participation during each of
the accrual computation periods (1,000/2,000). Thus, B's annual
retirement benefit would be $1,000--i.e., $5,000 average compensation
x .02 x 10 years of participation.)
(ii) If the plan adjusts the average compensation during plan
participation to reflect full compensation, then the plan may prorate
years of participation. Thus, the average full annual compensation for B
would be $10,000 rather than the $5,000 actually paid. Employee B's
annual retirement benefit would then be $2,000 ($10,000 average full
compensation x .02 x 10 years of participation).
(e) Amendments to change accrual computation periods. (1) A plan may
be amended to change the accrual computation period to a different 12-
consecutive-month period, provided that the period between the end of
the last accrual computation period under the plan as in effect before
such amendment and the beginning of the first accrual computation period
under the plan as amended is treated as a partial accrual computation
period in accordance with the rules set forth in paragraph (e)(2) of
this section.
(2) In the case of a partial accrual computation period, the
following rules shall apply:
(i) A plan having a minimum service requirement expressed in hours
of service (or other units of service) for benefit accrual in a full
accrual computation period (as permitted under section 204(b)(3)(B) of
the Act and section 411(b)(3)(B) of the Code) may apply a minimum
service requirement for benefit accrual in a partial accrual computation
period which is equal to the plan's minimum service requirement for
benefit accrual in a full accrual computation period, multiplied by the
ratio of the length of the partial accrual computation period to a full
year.
(ii) In the case of a participant who meets a plan's minimum service
requirement for benefit accrual in a partial accrual computation period
(as permitted under paragraph (e)(2)(i) of this section), the plan shall
credit the participant with at least a partial year of participation for
purposes of benefit accrual. Credit for a partial accrual computation
period shall be determined in accordance with paragraphs (c) and (d) of
this section.
(3) Example. Effective October 1, 1977, a plan is amended to change
the accrual computation period from the 12-
consecutive-month period beginning on January 1 to the 12-consecutive-
month period beginning on October 1. The period from January 1, 1977 to
September 30, 1977 must be treated as a partial accrual computation
period. The plan has a requirement that a participant must be credited
with 1,000 hours of service in an accrual computation period in order to
be credited with a year of participation for purposes of benefit
accrual. For the partial accrual computation period the plan may require
a participant to be credited with 750 hours of service in the partial
accrual computation period in order to receive credit for purposes of
benefit accrual (1,000 hours of service multiplied by the ratio of 9
months to 12 months). To the extent permitted under paragraph (d) of
this section, the plan may prorate accrual credit on whatever basis the
plan uses to prorate accrual credit for employees whose service is 1,000
hours of service or more but less than service required for full accrual
in a full accrual computation period.
