Search the Community

I have a new client that is a governmental entity that sponsors a 457(b) plan for its employees. An employee has attained normal retirement age under the plan and retired. He did not take a distribution at retirement. Four months later, the individual is re-employed in a part-time position which makes him ineligible for contributing to the 457(b) plan. The employee has now asked for a distribution from the 457(b) plan. The plan provides that upon severance from employment with the entity, a participant shall be entitled to receive a distribution of his account. Severance from employment is defined as a voluntary or involuntary termination of employment. The regulations under 457 provide that an employee has a severance from employment with the eligible employer if the employee dies, retires, or otherwise has a severance from employment with the eligible employer, and directs one to see the 401(k) regulations for additional guidance concerning severance from employment. Because of the individual’s status as a rehired employee, and the reference to the 401(k) regulations, I am concluding that his rehired status makes him ineligible for a distribution now. I am being told that in the past the client has taken the position that a “retirement” is sufficient to allow for subsequent distributions, even while the individual is working for the entity as a part-time employee. I can’t find any guidance on 457 plans that would allow for a distribution based on the prior retirement when the individual is currently working for the entity, and I am wondering if the group knows of any unofficial IRS guidance on this issue.