Ask the Experts June 22, 2021

Is Past Service Counted for Eligibility for Previous Student Employees?

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

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“I read with great interest your Ask the Experts column that discusses the transition of a union employee to a nonunion employee in a 403(b) plan where union employees were not eligible for employer contributions. In that article, it stated that the employee’s service as a union employee would still count for waiting period purposes. As such, the employee would have immediately entered the plan once the employee became a nonunion employee, since the employee had already met the service requirement with service performed while a union employee, which could NOT be excluded.

“But would service performed as an employee that could be statutorily ineligible count for eligibility and/or vesting purposes under the plan? For example, in our 403(b) plan, under the universal availability rules, we exclude students performing services described in Code section 3121(b)(10), since we have university students performing services for our university. Does that service count for eligibility and vesting purposes if we later hire such students as retirement plan eligible employees, assuming break-in-service rules wouldn’t wipe it out?”

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Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

The answer is, in general, yes. The types of service that can be excluded for eligibility and vesting purposes is quite limited. For example, here is Code section 411(a)(4), which lists the categories of service that can be excluded for vesting purposes:

(4)Service included in determination of nonforfeitable percentage:

In computing the period of service under the plan for purposes of determining the nonforfeitable percentage under paragraph (2), all of an employee’s years of service with the employer or employers maintaining the plan shall be taken into account, except that the following may be disregarded:

(A)years of service before age 18;

(B)years of service during a period for which the employee declined to contribute to a plan requiring employee contributions;

(C)years of service with an employer during any period for which the employer did not maintain the plan or a predecessor plan (as defined under regulations prescribed by the Secretary);

(D)service not required to be taken into account under paragraph (6);

(E)years of service before January 1, 1971, unless the employee has had at least 3 years of service after December 31, 1970;

(F)years of service before the first plan year to which this section applies, if such service would have been disregarded under the rules of the plan with regard to breaks in service as in effect on the applicable date; and

(G)in the case of a multiemployer plan, years of service—

(i)with an employer after—
(I)a complete withdrawal of that employer from the plan (within the meaning of section 4203 of the Employee Retirement Income Security Act [ERISA] of 1974), or
(II)to the extent permitted in regulations prescribed by the Secretary, a partial withdrawal described in section 4205(b)(2)(A)(i) of such Act in conjunction with the decertification of the collective bargaining representative, and
(ii)with any employer under the plan after the termination date of the plan under section 4048 of such Act.

Thus, in general, unless the student’s service was prior to the student turning 18 years of age, it would be included for vesting purposes. As for the plan’s waiting period for eligibility, the types of service that can be excluded are even more restrictive, and also would not include service performed while a student at a university, as in your question. Thus, your operating systems should have the ability to track such types of service for both eligibility and vesting purposes in case such students eventually become employees. Fortunately, if your plan counts hours, most students would not have performed enough hours of service to meet the 1,000-hour requirement for inclusion as a year of service. Of course, this assumes that the 403(b) plan in question is subject to the vesting and eligibility requirements of ERISA, as well as the nondiscrimination rules under Code section 403(b)(12).

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.

Administration June 21, 2021

PSNC 2021: What to Expect From Provider Relationships

Industry experts discussed how to work with providers to ensure success for your plan.

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The first day of the 2021 virtual PLANSPONSOR National Conference (PSNC) featured experts who reviewed recordkeeper relationships with plan sponsors, plan advisers and third-party administrators (TPAs) and discussed how providers contribute to the overall success of the plan.

Starting off the panel, Rachelle Moody, total rewards manager of Fugro Holdings Inc. and a finalist for the 2021 PLANSPONSOR Plan Sponsor of the Year awards, discussed her experience collaborating with recordkeepers and advisers.

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“I prefer to work with both as a true partnership,” she said. “I lean on their ability and bounce ideas off of them and look to them to provide expert knowledge where I may not be looking.”

She said she thinks the most valuable thing a recordkeeper can offer is a combination of products and service knowledge, along with interpersonal skills. “I want to be able to have a conversation just back and forth, and, while I don’t get too involved in asking about families, I want to create that relationship with them,” she explained.

Other important qualities include being reliable, trustworthy, education-oriented and proactive. Understanding the Fugro product and services is key, because when a provider knows its client, it will also recognize its workers and the specific situations that could benefit them, Moody said.

“Not only do you know what type of business we are, but the employees that we hire,” she said. “When you know that, it gives you a better focus on what these employees do and what makes sense for them and their families.”

Stephen Popper, managing director at SageView Advisory Group, said valued recordkeepers will exhaust ideas and options with plan sponsors and other providers. Communicating effectively is another appreciated trait, including knowing if or when a particular staff member is out of the office or unavailable. “You would be surprised at how many recordkeepers don’t let us know when they’ll be out,” Popper said.

It’s also important for recordkeepers to match the right staff member with a client, added Jason Chepenik, senior vice president of retirement and wealth at OneDigital.

“It does not matter how many assets you have—you have to match up with the right person or immediately you will figure out that it doesn’t work,” he said. “That can impact the relationship.”

Chepenik said it’s important to take the time to find a provider that will fit with a plan sponsor, rather than rushing to hire one. 

Popper touched on the importance of owning up to mistakes, especially if there is an upset participant or employee. For example, in the case of a miscommunication, vendors are expected to be upfront about an error and work with the plan sponsor, adviser and any third-party group to avoid another occurrence, Popper said.

“What I value is when a leadership team can recognize that it made a mistake and is owning it,” he said. “I want to look at a vendor partner who owns that and tries to work through the mess to resolve it.”

Chepenik said he values vendors who go through multiple solution scenarios rather than just one. “My favorite ones are ones that brainstorm and work together to find four or five different solutions,” he added.

As a benefits manager, Moody warned that while mistakes are not a dealbreaker when it comes to working with a recordkeeper, it’s best to keep them to a minimum. “If it’s a recurring issue, that’s not going to be good. I haven’t had the experience where I’ve had the same mistake repeated over and over again, but if there comes a new mistake, those should be far and few between,” she said.

The panel discussed other hot topics and trends in the industry, including consolidation. If a recordkeeper has been acquired or is in the process of being acquired, Moody underscored the importance of speaking with the vendor and asking questions about how the merger could potentially impact the plan. She urged employers to ask: Why is there a need for consolidation? Does the acquiring firm offer a participant website? How will the new investment options be chosen? How will the new recordkeeper partner with our adviser? Does it generate revenue on its investment offerings? What does it do to prevent data breaches in cyberattacks?

The experts also touched on cybersecurity and the risk of cyberattacks , especially as most workforces switched to remote work environments in 2020 and with more litigation turning up on cybersecurity.

Similarly to the topic of consolidation, experts recommended that plan sponsors should ask questions.

“It’s up to us to know what’s happening,” said Chepenik. “It can no longer be ‘I’m assuming my vendor is doing this.’ You have to document that it’s happening.”

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