The number of years that an individual works for an employer, for purposes of determining whether the individual is eligible to participate in the employer’s retirement plan, and if applicable, the number of years for determining whether the individual has accrued any vesting ( ownership) in employer contributions.
For qualified plans, a year of service is usually accrued when an employee works at least 1,000 hours during a 12-month period. The employer can choose to lower or eliminate this requirement, but cannot make it more than 1000 hours.
For SEP IRAs, a year of service is defined as any period of service performed during the year, however short.
IRC §410(a)(3)(A), DOL Reg. 2530.202-2(a), Prop. Treas. Reg. §1.408-7 for SEP IRAs, IRC §408(k)(2);The Plan Document for a qualified plan, The SEP IRA adoption agreement & plan document. See IRS Form 5305-SEP at www.irs.gov for example.
For information about employers that share employees, see Revenue Ruling 73-447
Additional Helpful Information
If a qualified plan’s years-of-service requirement for eligibility purposes is more than 1-year, all plan contributions must be 100% vested after no more than two years of service. (IRC Sec. 410(a)(1)(B)(i)).