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Rule of Parity


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"In the case of a Former Employee who under the Plan does not have a nonforfeitable right to any interest in the Plan
resulting from Employer contributions, "

Has anyone found a good article from a good source on what this means.  I feel like you need a table with entries for the following:

Eligible for 401(k) but never made any contributions

Eligible for 401(k) but took  a distriubtion shortly after termination

Eligible for 401k and never took  a distriubtion

Eligible for profit sharing but never received an allocation

Eligible for profit sharing and took  a distribution shortly after termination

You ge tthe point.  There is a different logic for each of these scenairos.  Anyone ever see anything that really go through this in detail?

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Isn't the answer for any one of those that ends with "took a distribution" mean they had a non-forfeitable right?  

So really the only two that seem hard are elig for 4k and never made any cont and elig for PS and never got an allocation. 

The simple answer is to get everyone to set up a once a participant always a participant plan 100% of the time!  ?

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15 hours ago, ESOP Guy said:

The simple answer is to get everyone to set up a once a participant always a participant plan 100% of the time!  ?

Well, I agree that is easiest, but sometiome speople have been gone for 7 or 10 years and its a bit awkward to tell them they are in straight away.

"In the case of a Former Employee who under the Plan does not have a nonforfeitable right to any interest in the Plan
resulting from Employer contributions, "

A Participant who took a distribution 8 years ago does not today have a "nonforfeitable right to any interest in the Plan" so I'm not convinced that taking a distribution is irrelevant.  For example if a participant still has money in the plan 8 years later they never stopped being a participant in the first place and they clearly have a non-forfeitable right to an interest in the plan...

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I have always understood the Rule of Parity measures the idea if they have a non-vested benefit on the date of termination not rehire.

 

So I stand by my idea if they took a distribution in the past they had a non-forfeitable right that trigger that provision. 

This is why you hear all the time most employees ought to enter a plan upon rehire if they had any kind of service and the plan gave any kind of contributions.  The difference between once a participant always a participant and Rule of Parity just aren't that large.  

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Ferenczy Benefits Law Center has an article with a chart and nowhere does it talk about previously having a vested benefit, at least that I can see.  The language cited in the original post, and our docs, is present tense and I'm not sure why it should be interpreted as past tense.

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6 minutes ago, Bird said:

Ferenczy Benefits Law Center has an article with a chart and nowhere does it talk about previously having a vested benefit, at least that I can see.  The language cited in the original post, and our docs, is present tense and I'm not sure why it should be interpreted as past tense.

To me it uses both past and present tense.  I quote:

 

Another optional election that can be made is the Rule of Parity. If a plan has this rule, it applies only to individuals who were not vested in any benefit when they terminated employment. Under the Rule of Parity, a rehired employee’s prior service is disregarded if the employee’s breaks-in-service exceed either the number of years of service s/he had prior to the breaks, or five years—whichever is greater. If the employee’s breaks-in-service do not exceed the greater of those two periods, the service prior to termination must be counted for eligibility purposes.

Remember that the Rule of Parity does not apply, even if it is in the plan, if the employee has even one dollar of vested benefit in the plan, including salary deferrals in a 401(k) plan. If the employee is vested at all, s/he will re-enter the plan upon rehire.

 

The first bold part talks about if they were vested when terminated.    The second bold part uses has and in my mind confuses things by doing so.  

 

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