Separation from service

[Guest Lex]

A Plan has been amended in accordance with EGTRRA eliminating the distinction between severance of employment and separation of service.

Participant A is 55- he leaves employment of the company and obtains a total distribution from the plan. He is looking to claim the age 55 exception rule so as not to pay the 10% penalty. However, he then performs service to his former employer as a bona fide contractor. The decision to allow him to perform such contract work was made and agreed upon prior to his termination.

1) Was the Plan wrong in allowing this distribution- did he really have a separation from service?

2) Does he qualify for the 10% penalty exception?