Employer doesn't want to let Rehire on plan immediately.

[Guest Sara H]

One of my clients has an employee who was hired on 6/30/97. He met the 1 year eligibility period and entered the plan 7/1/98. He terminated 9/4/98 and took a distribution of his vested balance. I just found out that he was rehired in August 2001 and informed her that he should have been let back in the plan immediately. She doesn't want to let him back in until he has met his "year of service" again. Any way she can get away with this without risking the qualification of her plan?

[Archimage]

I don't know of anyway. The employee has to be let back in the plan.

[Guest Sara H]

That was my thought too. I want to make it clear to her that if she chooses not to let them on, she's liable (not our company) in the event of an audit. I am also assuming that if she decides to let them on now, she will have to make up some contributions for the time that she kept them out of the plan, right?

[Guest pineapple]

Actually, there is an rule which says that if a former participant incurs a break in service, you can postpone their re-entry into the plan for one year, but once they complete the year they must be let into the plan retroactively. (See page 2.46 of the ERISA Outline Book). However, I have never seen a plan with this provision, due to the administrative headache of retroactively adding a participant.

Finally, note that if the plan doesn't contain the above provision, the employer HAS to let the employee re-enter the plan. It is not a choice. Sara H - if I was the TPA, I would include the employee as a participant, and if the employer has a problem with that, tell them to find a new TPA. Otherwise, you are asking for trouble.

[MWeddell]

I couldn't put my hands on a citation to support this, but I recall that the IRS position has been that a participant in a plan that includes a 401(k) arrangement must allow a former participant to be eligible immediately upon rehire and not first require a year of service after rehire. The reason is because one cannot retroactively make an employee eligible for a 401(k) arrangement.

[jaemmons]

MWeddel,

Do you know of any written support to your final statement concerning not being allowed to retroactively make an employee eligible for 401(k). The reason is being that I have attempted to argue in support of this on other threads, but do not recall where I read the supporting documentation.

[Theresa Lynn]

I must be missing something. I don't follow why the employee must be able to re-enter immediately. Why doesn't the cashout of his vested benefit (and his failure to repay the distribution), along with the break in service, result in a one-year wait as if a new employee?

[MWeddell]

Jaemmons, no I couldn't find the authority for the IRS position. I looked for awhile this morning. If I find it, I'll post again.

[Tom Poje]

before going further, what does the document say for rehires?

the thread started out saying an ee was rehired, and they don't want to let them back in until a year has passed.

and different comments were made, all true (at least to a degree), but that still doesn't say what the document says.

as to retroactive entry, I think even the ERISA Outline book says that is the problem with the 1 year bk in service rule. a person would have to retro entry and since an ee can't defer at that point it presents all types of problems. I don't think theeOutline Book says you couldn't do this, it's something to be aware of and the problem it causes.

[Archimage]

Tom is right. I would definitely advise the client to let the participant back in due to administrative burdens. Double check the document. Some documents do not allow the one year wait after rehire.

[Erik Read]

Some documents also require as part of the rehire elig. to repay the portion distributed, and for the employer to restore the participants non-vested balance as of the previous valuation.

Let's check the doc and be sure we know what it says first - as mentioned by Tom Poje.

[Kirk Maldonado]

A participant whose prior service cannot be disregarded must recommence participation immediately, even if before the next entry date. Treasury Regulation Section 1.410(a)-4((B)(2), Example 3.

[KJohnson]

EREAD,

I think that restoring the previously forfeited balance and resuming participation are two different things. One can require repayment the other cannot.

[Tom Poje]

I think KJohnson is correct. I thought repayment restored years of service for vesting, but had nothing at all to do with eligibility.

[Guest Sara H]

I thought that they got their vesting regardless if they paid back their distributed balance or not. Again, don't many documents refer to counting pre-break and post-break service for vesting after the employee has been rehired for 1 year unless they have had a 5 year break in service?

[Tom Poje]

dang it, I knew I was guessing before!

if the document uses 1-year bk rule then you restore all svc after ee completes a year of service.

if it uses Rule of Parity then you lose svc for vesting, but only if you are:

0 vested

had at least 5 consecutive break in svc.

Deferrals are not considered when determining if you are zero vested.

The 5 years could be more if you worked for a company greater than 5 years, but with the minimum vesting schedules in effect now, there is no way you would be zero vested.

I always have to look those rules up in regards to break in svc.

what a bother.

[KJohnson]

Aren't there three things involved--participation under 410, the definition of accrued benefit under 411(a)(7) and the number of years required to be taken into account for vesting under 411(a)(5)-(6).

My understanding is that only the definition of accrued benefit (i.e. the restoration of forfeitures) can require repayment.