Step 2: Choose the Period Lengths
Set the measurement, administrative and stability periods, and confirm the stability period is at least six months and no shorter than the measurement period.
The three things to know.
Start From the Plan Year
Work backward from the stability period you want and leave room for the administrative period and open enrollment.
Check the Limits
Measurement period of 3 to 12 months, administrative period of up to 90 days, and a full-time stability period of at least six months and no shorter than measurement.
Test It on a Calendar
Draw the design for the next two years before adopting it, so overlaps and gaps are visible.
Sources: 26 CFR § 54.4980H-3. General information, not legal advice.
A worked example.
Testing Two Designs
An employer runs last year’s hours through a 12-month window and a six-month window. Under the 12-month design 8 employees change status; under the six-month design 19 do.
What the Rule Produces
The longer window produces steadier results with less administration, so the employer chooses 12 months with a calendar-year stability period, accepting that status changes only once a year.
Four steps to apply it.
1. Pull last year’s data
Gather hours for every employee.
2. Model both windows
Run the numbers for each design.
3. Compare changes
Count the status changes.
4. Choose
Pick the design that fits your calendar.
Where it goes wrong. Choosing lengths without testing them against real hours.
The questions that come up next.
What if we are unsure between 6 and 12 months?
Test both against last year’s hours data to see how many employees change status.
Do part-time results need a limit?
Yes. The stability period for employees found not full-time cannot exceed the measurement period.
Is there a standard design?
Many calendar-year plans use 12 months ending mid-October, with administrative through December.
How far ahead should we decide?
Before the first measurement period starts, so the dates are fixed for the cycle.
Can we change lengths next year?
Yes, with documentation and transition planning.
Plan-specific questions belong with ERISA counsel, and we will bring them in.
Related pages on the look-back method.
Step 3: Write It Into the Plan
Put the periods and your break-in-service rules in the plan document and summary plan description, applied uniformly within each category.
Step 4: Build the Hours Feed
Decide which system is the record of hours worked and paid, how non-hourly staff are counted, and how paid leave flows in.
The Full Look-Back Guide
Every rule, example and source behind this page, in one place.
Talk it through with someone who runs this every year.
We help you choose the design, document it and reconcile the hours before the numbers reach your reporting.
An independent employee benefits consulting firm. We look at the entire benefits program — cost, plan performance, risk and administration.
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