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An employee was working for City A and was covered under a union contract hat provided she was an eligible employee for purposes of Plan X (a defined benefit plan). After ten years of service, Employee became a certified teacher and took a job with the Board of Education for (same) City A and is now covered under a statewide retirement system for teachers of State S and no longer an eligible employee for Plan X. Assume that her last day of work with the City was on Friday and she started teaching in the schools of City A on the following Monday.

Did this employee terminate service with City A when she became a teacher or has she continued to work for the same employer and just stopped being eligible for Plan X?

Must she wait until she retires as a teacher (totally leaving employment with City A or its Bd of Ed or any other subdivision or related employer) in order to commence benefits? The plan does not permit in service commencement of benefits.

The plan (which is based on statutes, ordinances and collective bargaining agreements) has very imprecise language so it's really not helpful at all in determining whether or not she terminated employment.

If anyone can point me to guidance on how to determine separation from employment or application of controlled group rules as may be applicable to governmental plans in such a case, I would be appreciative.


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There really hasn't been any guidance issued. All they've said is, "under current guidance, a reasonable, good faith interpretation standard applies with respect to governments. See Notice 89-23, 1989-1 C.B. 654, and Notice 96-64, 1996-2 C.B. 229, see §601.601(d)(2) of this chapter." Announcement 2011-79. (The announcement deals specifically with Indian Tribal governments, but seems to be applicable to governmental plans generally.)

Personally, I'd be a bit wary of treating a city and a board of education for that city as separate employers, and thus treating the teacher as having had a termination of employment. But you know your client's risk tolerance better than I do.

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Thanks rcline46 for that thought. In this case, no one is looking to transfer any credits or assets from one plan to another. The current issue is determining whether she could have started pension benefits from the City plan while working for the Board of Ed. My instinct is that even though she isn't working directly for the City when she is teaching, it's still the same Employer ( in a good faith interpretation of controlled group rules as they might apply to a governmental employer) so she needs to wait until she retires from teaching to claim her City benefits.

I was hoping for some legal authority or even informal statements from the IRS about this to back up the logic (as I see it), but haven't found anything on point.

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