Rehired Employee

[Guest Sara H]

An employee is hired 8/18/98 and terminated employment on 6/27/01. He was 25% vested upon his termination and took a distribution of his vested balance at the time of his termination. He was rehired on 11/9/01. On 11/16/01 the employer sent in the year end match - a portion of which went to him. Is the match paid out to him at 25% and he forfeits the rest or does it stay in his account and continue to vest? :confused:

[jaemmons]

Keeping it simple, I would say that since he had already accrued a portion of the year-end match for the plan year, regardless of whether or not he had taken a payout, it vests at 25%. The "balance to the credit" of the terminated participant, includes vested accrued employer contribution allocations, which may be paid to his/her account at a later date. If you didn't allocate it back to him at the 25%, you may be violating the anti-cutback rules.

[R. Butler]

Stays in his account and continues to vest.

Follow up question, did he accrue the match prior to forfeiting? I am assuming your document reads forfeitures occur at the earlier of payout or 5 consecutive one year breaks. If he was entitled to additional money at the time of the initial distribution, has he been paid out thereby triggering a forfeiture?

[Guest Sara H]

R Butler - When he terminated, he was paid out his entire vested portion and the remainder was forfeitted. His account balance was zero until the employer recently submitted his year end match of $370.00. Had he not been rehired, we would have done an additional distribution of $92.50 (25% of $370) and the rest would have been forfeitted. You are saying that because he was rehired he should be able to keep the entire $370.00 and that money should continue to vest??

[R. Butler]

I don't see a basis for forfeiting the $370 match accrued at year end if he is currently employed. From your facts it seems to me that at a minimum, his account balance should be $370 and his vested balance should be $92.50. My thought related to the amount originally forfeited. If the match had already accrued at the time of the initial distribution, has he truly been paid out? If not, should there have been any forfeiture initially?

[Guest Sara H]

I would say that yes, he had accrued the match - it just hadn't been put into his account. In regards to his unvested balance remaining after his distribution upon termination - they didn't know that he would be rehired at that time, so shouldn't it have been forfeitted?