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This plan is a non-standardized profit sharing plan.   I'm working on the restatement and the client would like termination distributions after a 1 year break in service, unless they terminate due to retirement, then they would like after 30 days.    Would this be allowable?    I'd have to add it under "other" in the adoption agreement.  

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These are my options........ Id like to add it under other but wasn't sure if allowed.    

 

Time & Form of Payment

3.      Time of Payment (Other than Death)

Distributions after Termination of Employment for reasons other than death shall commence (Section 7.02):

a.      [  ]  Immediate. As soon as administratively feasible with a final payment made consisting of any allocations occurring after such Termination of Employment.

b.      [  ]  End of Plan Year. As soon as administratively feasible after all contributions have been allocated relating to the Plan Year in which the Participant's Account balance becomes distributable.

c.      [  ]  Normal Retirement Date.

d.      [ X ]  Other: After the participant has incurred a one (1) Year Break in Service

NOTE: Any entry in "Other" must comply with Code section 401(a)(9), Section 7.02(e) and other requirements of Article 7.

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In this case, if the computation period is the Plan Year:

What happens is someone quits in March with 250 hours which is under the threshold to have a break is service.

Wouldn't they get their one (1) Year Break in Service on 12/31 that year, or at least on the next 1/1?

(And what does your Section 7.02(e) and the rest of Article 7 say?)

What if they quit in March 2021 with 250 hours, get rehired in Sep 2021, work 100 hours, quit.  Get rehired in next February 2022 and work 40 hours.  Now, no matter what the computation period is, in Feb 2022 they have the requisite BIS and should be able to be paid out right away.  Heck, if they never worked 500 hours in a year, they might have two, three, five, eight consecutive one (1) Year Breaks in Service under their belt.

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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Also, before putting a response under "other", you may need to check with the document provider and see if it is a minor/allowable modification. This can get tricky sometimes and an input from an ERISA attorney may be needed (not saying you need to here). You may take the document out of pre-approved status inadvertently.

BG5150 made a few good points.

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18 hours ago, BG5150 said:

In this case, if the computation period is the Plan Year:

What happens is someone quits in March with 250 hours which is under the threshold to have a break is service.

Wouldn't they get their one (1) Year Break in Service on 12/31 that year, or at least on the next 1/1?

(And what does your Section 7.02(e) and the rest of Article 7 say?)

What if they quit in March 2021 with 250 hours, get rehired in Sep 2021, work 100 hours, quit.  Get rehired in next February 2022 and work 40 hours.  Now, no matter what the computation period is, in Feb 2022 they have the requisite BIS and should be able to be paid out right away.  Heck, if they never worked 500 hours in a year, they might have two, three, five, eight consecutive one (1) Year Breaks in Service under their belt.

Because of these issues you might want it to read something to the effect they get paid the year following the year they have a One (1) year Break in Service.   I see that in ESOPs all the time.   

I will admit this means if a person terminates in 2020 and has over 500 hours their BIS is 2021.   So they don't get paid until 2022.   The client might not want to have the delay be that long.   However, I don't see how anyone gets paid earlier than 2021 with that kind of language.  

I guess it might be worth having a good conversation with the client to make sure they and you understand the actual goal for putting any kind of delay into the plan's distribution section.   There are plenty of good reasons just make sure the client understands what they are doing.   After all they are going to get the calls from ex-employees demanding to know why they can't get their money.  

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I'm going to recommend  the end of the plan year in which they terminate option.    They allow for inservice at age 59 1/2.   If someone is retiring, they could request an inservice withdrawal prior to their retirement.  

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17 minutes ago, Chippy said:

If someone is retiring, they could request an inservice withdrawal prior to their retirement.  

I thought retirement was 30 days?

For the others, is the plan sponsor gonna tell the people over 59 1/2, right be fore they get fired, "If you want any of your retirement money soon, you need to take an in-service withdrawal.  Because soon, you won't be in-service with us any more..."

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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They wanted to add distributions for terminated participants due to retirement is 30 days, but just seems to complicated to add under other with their current 1 year break in service rule.    There are only like 10 particpiants in the plan, so I don't see it happening very often.   

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Your base document may address distribution timing after Retirement. Our's says "Distributions to Employees may be accelerated upon special circumstances, such as termination after attainment of Normal Retirement Age or other special circumstances, provided such acceleration does not cause the Plan to violate the nondiscrimination rules under Code §401(a)(4) and the regulations thereunder."

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How does one define whether a participant "retired" or "terminated" from the plan's point of view?

I support Bri's proposed solution of "Define the payment timing to be the earlier of NRA or following a one-year-break".

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28 minutes ago, acm_acm said:

How does one define whether a participant "retired" or "terminated" from the plan's point of view?

I support Bri's proposed solution of "Define the payment timing to be the earlier of NRA or following a one-year-break".

"Retirement" in a plan is severance of employment on or after Normal Retirement Age.

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QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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  • 2 weeks later...
On 8/17/2021 at 12:11 PM, BG5150 said:

 

"Retirement" in a plan is severance of employment on or after Normal Retirement Age.

I agree. 

The point of raising the question was that plenty of plan sponsors go through all sorts of contortions about trying "define" some separations as "terminations" instead of "retirements", especially when dealing with OPEB plans when there often isn't a plan document.

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