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Constructive Receipt


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Guest OrPERS

Former member applied for a refund on Date X by personally delivering all the necessary forms to our offices (we date/time stamped, etc.). On Date X + 5 days, she started working for another covered employer. We denied her a refund because she was no longer "separated from service" at the time we processed her request (Date X + 10 days). Could we not honor her request because it was received when she was eligible for a refund? Thank you in advance for your analysis and opinions.

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You really have three problems here. The first is whether the person has gone back to work for the same "employer." You might want to check out the "Fields letter" on trying to distinguish whether you have one employer or multiple employers when you have various governmental entities contributing to the same plan. Basically, the rule at this point seems to be pretty much that you can take almost any approach you want, but you have to take it consistently. See, e.g., PLR 200028042 (April 19, 2000.) Thus, if the plan is treating the all contributing employers as a single employer for other purposes, it probably needs to do so for this purpose, too.

If the person has gone back to work for an entity that is treated as part of the same employer, some old guidance suggests that the person would not be treated as having truly separated from service for purposes of the rule stating that a defined benefit plan cannot pay benefits until the earlier of retirement or separation from service. (I don't have a cite right now--does anyone on this board know one?) How long the person needs to be away before they can truly be treated as separated from service is unclear. However, it has been my experience that most statewide plans require at least a 30-day break in service. Given the lack of clarity as to the dividing line, being in step with other plans at least gives you some degree of safety.

Finally, what does the plan itself say? Even if the Internal Revenue Code would otherwise allow a distribution, a state or local governmental plan must also operate in accordance with its terms, and with applicable state and local law.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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  • 2 weeks later...

I think that a lot of plans follow Kirk's approach. The one issue is that you may want to have the plan provide for how long the gap will be between termination of employment and pay-out. It can be a big employee relations problem, regardless of whether it is a legal problem, if a plan's delay in processing a distribution causes the employee not to be entitled to a large lump sum to which s/he would otherwise be entitled.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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... and it would be really helpful if the plan itself addressed this.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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