If someone is hired during the year and the ESOP’s participation requirement is one year, in the following year will they be eligible to receive the ESOP contribution based on the full year’s wages or just from the month they were hired?

Question

Accepted Answer

It depends on the plan's entry dates. Say you have a calendar-year plan (January 1 to December 31). The plan provides two entry dates, January 1 and July 1.The employee is hired in September. The employee has to work 1,000 hours in a plan year. The employee will not work that many hours in the first partial year so is not eligible for the next January 1 entry date. The new plan year starts January 1, so the employee will become eligible July 1 only if he or she works 1,000 hours in that six-month period. Otherwise, the employee will have to wait till the next January 1. These are minimum requirements, however. You can design your plan so that people can enter sooner. As for the compensation, that is also dependent on your plan. The plan can limit the compensation taken into account for allocation of contributions, to the time that a participant begins participation rather than hire date.