(a) General. Under sections 202, 203 and 204 of the Act and sections
410 and 411 of the Code, an employee's statutory entitlements with
regard to participation, vesting and benefit accrual are generally
determined by reference to years of service and years of participation
completed by the employee and one-year breaks in service incurred by the
employee. The units used for determining an employee's credit towards
statutory participation, vesting and benefit accrual entitlements are in
turn defined in terms of the number of hours of service credited to the
employee during a specified period--in general, a twelve-consecutive-
month period--referred to herein as a ``computation period''. A plan
must designate eligibility computation periods pursuant to
Sec. 2530.202-2 and vesting computation periods pursuant to
Sec. 2530.203-2, and, under certain circumstances, a defined benefit
plan must designate accrual computation periods pursuant to
Sec. 2530.204-2. An employee who is credited with 1000 hours of service
during an eligibility computation period must generally be credited with
a year of service for purposes of section 202 of the Act and section 410
of the Code (relating to minimum participation standards). An employee
who is credited with 1000 hours of service during a vesting computation
period must generally be credited with a year of service for purposes of
section 203 of the Act and 411(a) of the Code (relating to minimum
vesting standards). An employee who completes 1000 hours of service
during an accrual computation period must, under certain circumstances,
be credited with at least a partial year of participation for purposes
of section 204 of the Act and section 411(b) of the Code (relating to
benefit accrual requirements). With respect to benefit accrual, however,
the plan may not be required to credit an employee with a full year of
participation and, therefore, full accrual for such year of
participation unless the employee is credited with the number of hours
of service or other permissible units of credit prescribed under the
plan for crediting of a full year of participation (see Sec. 2530.204-2
(c) and (d)). It should be noted that under some of the equivalencies
which a plan may use under Sec. 2530.200b-3 to determine the
number of units of service to be credited to an employee in a
computation period, an employee must be credited with a year of service
of partial year of participation if the employee is credited with a
number of units of service which is less than 1000 in a computation
period. See also Sec. 2530.200b-9, relating to elapsed time.
(b) Rules generally applicable to computation periods. In general,
employment at the beginning or the end of an applicable computation
period or on any particular date during the computation period is not
determinative of whether the employee is credited with a year of service
or a partial year of participation, or incurs a break in service, for
the computation period. Rather, these determinations generally must be
made solely with reference to the number of hours (or other units of
service) which are credited to the employee during the applicable
computation period. For example, an employee who is credited with 1000
hours of service during any portion of a vesting computation period must
be credited with a year of service for that computation period
regardless of whether the employee is employed by the employer on the
first or the last day of the computation period. It should be noted,
however, that in certain circumstances, a plan may provide that certain
consequences follow from an employee's failure to be employed on a
particular date. For example, under section 202(a)(4) of the Act and
section 410(a)(4) of the Code, a plan may provide that an individual
otherwise entitled to commence participation in the plan on a specified
date does not commence participation on that date if he or she was
separated from the service before that date. Similary, under section
204(b)(1) of the Act and section 411(b)(1) of the Code, a plan which is
not a defined benefit plan is not subject to section 204 (b)(1) and
(b)(3) of the Act and section 411 (b)(1) and (b)(3) of the Code. Such a
plan, therefore, may provide that an individual who has been a
participant in the plan, but who has separated from service before the
date on which the employer's contributions to the plan or forfeitures
are allocated among participant's accounts or before the last day of the
vesting computation period, does not share in the allocation of such
contributions or forfeitures even though the individual is credited with
1000 or more hours of service for the applicable vesting computation
period. Under certain circumstances, however, such a plan provision may
result in discrimination prohibited under section 401(a)(4) of the Code.
See Revenue Ruling 76-250, I.R.B. 1976-27.