In service distibutions to rehired retiree

[AndyH]

DB plan allows employees to collect their monthly pension upon attainment of NRD if they work part time (under rate of 1,000 hrs/year)

Plan obviously does not allow part time person under NRA to collect because it's not a distributable event.

An early retiree wants to return to work and continue to collect. Should this be permitted? Plan is silent on issue and has no suspension of benefit language.

Can the plan deny future pension payments?

Can the plan be amended to not allow payments in such situation? If so, does this have to follow the suspension of benefit rules, or can the plan say that someone younger than NRA cannot collect at all, regardless of hours.

Any help on this would be appreciated. Real situation.

[KJohnson]

I believe that Carol Gold once informally took the position that institution of suspension rules, even if they complied with DOL regs would be a cutback (or proably more properly an elimination of an optional form of benefit). I think the rationale was that the DOL suspension rules pre-date REA and 411(d)(6).

My recolleciton is that there is a case out of the 5th Circuit called Spacek that might deal with this issue and say that there is no cutback as long as your suspension provisions are consistent with the DOL regs.

[Kirk Maldonado]

KJohnson:

I agree with that case, as you summarized it, provided that the plan always contained the suspension of benefits language. However, I don't think that you could adopt those rules and first impose them on somebody when they are rehired.

Stated in a differernt fashion, I agree with Carol Gold.

[david rigby]

What do you want to do?

If the goal is to permit employees to manage their retirement, then the plan provisions and the personnel administration can, in tandem, help. Suppose the employee has a legitimate severance of employment amnd commencement of benefits under the early retirement definitions. At a later date, the employer rehires the employee (possibly parttime, but not necessarily), and the plan benefit does not change. Ideally, the plan should make it clear that no suspension will occur, the employee can contine to earn credited service, and that benefit at subsequent severance of employment will be redetermined at that time, likely with an adjustment for the value of any benefits received. In the real world, this very often means that the benefit does not change at the later retirement date.

This might be a very good process, depending on the type of employer. Example, a hospital.

Note, that the original severance of employment should not be on Friday, with a rehire date on Monday. Don't play games with the timing.

[AndyH]

Thanks for the comments.

Pax, we're not trying to steer the answer one way or another. We're just unsure of the answer. The issues are not related to the amount of the pension; they are (1) whether the Plan would be violating the law by issuing a retirement check to a person who did not meet one of the distributable event conditions of a pension plan, being attainment of normal retirement, termination, death, disability, or plan termination and (2) if the sponsor wished to prohibit such payments, could it?

[KJohnson]

Kirk,

I guess I am not really sure of the distinction. Suppose that you had supsension rules that were not as severe as those in the DOL regs where you only suspended if someone had over 110 hours in a month when they came back. (In other words you don't want to suspend for people who come back part-time.) Could you then amend the supsension rules in your plan and suspend when someone is back for 40 hours in a month as allowed by the DOL reg? Would this be any less an elimination of an optional form of benefit than having no suspension rules to begin with and then imposing them?

Again, I haven't gone back and reread Spacek but my recolleciton is that the Plan changed the rules regarding suspension on someone who was already retired--but changed them in a manner permitted by the DOL reg. The Fifth Circuit said it was o.k. I think, per Carol Gold's comments, the IRS does not concede that the 5th Circuit got it right.

[david rigby]

Andy,

I think you are on the right track. The occurrence of a distributable event is important.

If the person has attained such an event but returned to employment, then you have some flexibility. For example, EE leaves at age 50 as a VT. Reaches age 55 and commences payments under early retirement provisions. Rehired at age 58. The plan could suspend payments, subject to the existence of such provisions in the plan. The plan is not required to have such provisions.

The accompanying discussion by KJohnson and Kirk focuses on whether a plan can be amended to add such provisions when not already present.