Can the "terminated with 500 or fewer hours" rule apply to the elective deferral component of a plan?

The elective deferral component of a 401(k) plan is subject to specific rules and regulations outlined by the IRS and ERISA. When discussing the "terminated with 500 or fewer hours" rule, it is important to note that this rule primarily pertains to the vesting of employer contributions and the ability of employees to access their account balances upon termination.

In general, the rule does not apply to the elective deferral amounts contributed to the plan by the employee. Employees are always fully vested in their own elective deferral contributions, regardless of their hours of service. Therefore, once an employee terminates, they retain the right to their elective deferral contributions even if they have fewer than 500 hours of service during the plan year. This is why the conclusion is that the "terminated with 500 or fewer hours" rule does not ever apply to the elective deferral component of a 401(k) plan. The employee's rights to their own contributions remain intact upon termination, separate from employer contribution considerations and service hour thresholds.