Benefit Accruals

[Guest SCUDDESLER]

This question should be easily researched, but I cannot find an answer that I am comfortable with.

A defined benefit plan uses the elapsed time method to credit service for eligiblity, vesting and benefit accrual purposes.

With regard to eligilility and vesting, there are clearly defined break-in-service rules which permit certain service to be either temporarily or permanently disregarded upon rehire. However, I cannot find any break-in-service rules applicable to benefit accruals.

The plan's benefit formula is 10% of average annual compensation times years of service. Participant X has an accrued benefit equal to $350 (10% of her average annual compensation) times 8 (her years of benefit service), payable at normal retirement age. She incurs a break in service and is then rehired. Under what circumstances, if any, can the plan termporarily or permanently disregard her pre-break benefit service for purposes of computing her accrued benefit following rehire? The plan's terms state that because she terminated at a time during which she was not eligible for normal retirement (attainment of age 65) or for a deferred vested benefit (completion of 10 year of service) her pre-break service is permanently disregarded upon rehire--meaning that she starts earning benefit service all over again. This does not seem permissible to me, but I cannot find a definitive answer.

Since I cannot locate any break-in-service rules like those applicable to eligibility and vesting, my conclusion is that all pre-break benefit service must be immediately recredited upon rehire (which is clearly not what the document provides). Does my conclusion sound correct to others? Thanks so much for your suggestions/comments.

[RTK]

Look at IRS Reg. 1.410(a)-7(e)(1) and (2). My take is that a period of service not required to be taken into account under parity break rule or one year hold out rule does not have to be recognized for benefit accrual purposes.

Thus, upon rehire, pre-break service must be credited for pre-break benefit service, unless the period of service upon which the benefit service is based is disregarded under parity break rule in plan. Also, the recognition can be postponed if one-year hold out rule is in plan to determine period of service.

[Gary]

my initial reaction to this is that if the person was rehired prior to the parity rules or even prior to ERISA, then it may be possible that the Plan is able to not consider the pre break service. my feeling is that these rules would be addressed in 411.