Calculating Retirement Benefits Of Temp-To-Perm Employees

(Published May 24, 2005)

 

While employees are off enjoying themselves on vacation, you might be stressing over how to cover their absence. One option: Use workers provided by professional leasing agencies.  If you're lucky, the workers fit in so well with your company that you might be inclined to hire them permanently as regular employees (not to replace the vacationing employee, of course, but rather in another department or in another position).

 

For purposes of eligibility and vesting in your company's retirement plan, be forewarned that, should you decide to go that route: 1) you might be obligated to credit service back to the date employees began temporary service at your workplace, and 2) asking workers to keep records or improperly crediting service only as of the date of regular hire may have costly consequences.

 

That's what happened to an employer that agreed to fork over $5.2 million to settle a class action lawsuit brought by nearly 1,300 temp-to-perm workers. They claimed that the employer improperly denied or delayed accrual of benefits. A district court refused to dismiss the suit and cleared the way for the group to pursue claims for retirement benefits.

 

The court held that the employer breached its fiduciary duty under the Employee Retirement Income Security Act (ERISA) by: 1) failing to calculate and award them vesting and eligibility credits for their stint as temps; 2) failing to keep track of their vesting eligibility credits; 3) improperly asking them to provide information about their vesting and eligibility credits; and 4) failing to notify them of their right to appeal benefits decisions. (Thomas v. SmithKline Beacham, Corp., E.D.PA, No. 00-2948, 2004)

 

Remember, if employees convert to permanent status, they must be credited with any periods of service they previously performed for the company as a leased employee. If you don't clearly have one, you should consider a system designed to track and record the hours worked by temps. It's improper to require that temps provide the information after their permanent status begins as a condition for any determination on eligibility for benefits. Don't rely on leasing agencies to keep records for you since these are often difficult to obtain.

 

Related Topic(s): Benefits/Employee Retirement Income Security Act (ERISA)