Rev. Rul. 89-13

1989-1 C.B. 112, 1989-6 I.R.B. 6.

                       Internal Revenue Service

                                 Revenue Ruling

                PLAN YEAR ENDING ON OTHER THAN LAST DAY OF MONTH

                          Published: February 6, 1989

26 CFR 1.411(a)-6: Year of service, hour of service, breaks in service.

  Plan year ending on other than last day of month. A plan does not fail to satisfy the computation period requirements of section 410(a)(3)(A), 411(a)(5)(A) and 411(b)(4)(A) of the Code merely because those periods are based on a plan year that ends on a date other than the last day of the month.

  An employer maintains a qualified plan that uses a plan year based on a 12- consecutive month period ending on June 19. The plan designates the plan year as the vesting and benefit accrual computation periods and as the computation period to be used to determine service for eligibility to participate after the initial eligibility computation period.

  ISSUE. At issue is whether the plan will satisfy the computation period requirements of sections 410(a)(3)(A), 411(a)(5)(A), and 411(b)(4)(A) if the plan's eligibility, vesting, and benefit accrual computation periods are based on a plan year which ends on a specified date other than the last day of a month.

  HOLDING. The Service has ruled that the plan will not fail to satisfy the statutory computation period requirements merely because those periods are based on a plan year that ends on a date other than the last day of a month.

  ANALYSIS. The Service reviewed the three computation period requirements and noted that each one refers to a '12-consecutive month period.' While section 441 generally precludes a taxable year from ending in the middle of a month, the Service said, 'this prohibition does not apply to a plan year.' The Service cautioned, however, that 'the taxable year of any trust forming part of a plan must end on the last day of a month or be based on a 52-53 week year, because the trust is a taxpayer that must comply with the requirements of section 441.'

ISSUE

  Will a retirement plan satisfy the computation period requirements of sections 410(a)(3)(A), 411(a)(5)(A), and 411(b)(4)(A) of the Internal Revenue Code if the plan's eligibility, vesting, and benefit accrual computation periods are based on the plan year, which ends on a specified date other than the last day of the month?

FACTS

  An employer maintains a plan having a plan year based on a 12 consecutive month period ending on June 19 of each calendar year. The plan designates the plan year as the vesting and benefit accrual computation periods and as the computation period to be used to determine service for eligibility to participate after the initial eligibility computation period. Each employee who is credited with 1,000 or more hours of service during a plan year is credited with a year of service for eligibility to participate and for vesting in accrued benefits and a full year of participation for benefit accrual.

LAW AND ANALYSIS

  Section 410(a)(3)(A) of the Code defines a year of service for eligibility to participate as a 12-month period. Years of service, after the initial 12-month period that begins on the employee's employment commencement date, may be determined by reference to the plan year.

  Section 411(a)(5)(A) of the Code defines a year of service for minimum vesting purposes as a calendar year, plan year, or other 12-consecutive month period designated by the plan during which the employee has completed 1,000 hours of service.

  Section 411(b)(4)(A) of the Code defines a year of participation for benefit accrual as a period of service calculated on a reasonable and consistent basis. Section 411(b)(4)(C) provides that for any employee whose service is less than 1,000 hours during any calendar year, plan year, or other 12-consecutive month period designated by the plan, the calculation of the employee's period of service shall not be treated as not made on a reasonable and consistent basis solely because such service is not taken into account.

  Although, with certain exceptions, section 441 of the Code precludes a taxable year from ending in the middle of a month, this prohibition does not apply to a plan year. The computation periods in this case are based on a designated 12-consecutive month period and are calculated on a reasonable and consistent basis.

  It should be noted that the taxable year of any trust forming part of a plan must end on the last day of a month or be based on a 52-53 week year, because the trust is a taxpayer that must comply with the requirements of section 441 of the Code. Section 441(f) permits a taxable year to end on a day other than the last day of a month only when the taxpayer has a 52-53 week year, which could not end on the same date each year.

HOLDING

  A plan does not fail to satisfy the computation period requirements of sections 410(a)(3)(A), 411(a)(5)(A), and 411(b)(4)(A) of the Code merely because those periods are based on a plan year that ends on a specified date other than the last day of the month.

DRAFTING INFORMATION

  The principal author of this notice is Kenneth Conn of the Employee Plans Technical and Actuarial Division. For further information regarding this notice, please contact the Employee Plans Technical and Actuarial telephone assistance service between the hours of 1:30 p.m. and 4:00 p.m. Eastern Time, Monday through Friday on (202) 566-6783/6784 (not a toll-free call). The telephone number of Mr. Conn is (202) 566-3733 (not a toll-free call).

Rev. Rul. 89-13, 1989-1 C.B. 112, 1989-6 I.R.B. 6.