Early Retirement Windows

[Guest HarveyC]

Couple of questions regarding early retirement window programs in a qualified DB plan:

1. Can the window period be extended for a single individual for bona fide business reasons (and to no one else)? What if all other eligibles have already accepted the window?

2. Can an individual terminate employment in order to become eligbile for the window benefit and subsequently return to work? Does one have to demonstrate that this is a bona fide termination (does there need to be a waiting period or must the rehire be on a contract basis)?

Seems to me like the above is not permissible but there is not much guidance on this (at least I can't find it). Is there some wiggle room or room for creativity?

[david rigby]

There is some regulatory guidance. In IRS Reg. 1.401(a)(4)-3(f)(4), the IRS discusses a window in context of nondiscrimination rules. See also other cross-refences in subparagraph (i). This reg. gives a flavor of how the IRS views an ERW.

(1) This reg. defines (for purposes of the reg.) ERW in subparagraph (iii). This definition includes just the provision you mention: "...certain employees may receive the benefit even though, for bona fide business reasons, they terminate employment within a reasonable time period after the end of the limited period." See Example 1 in subparagraph (iv). Note that this does not exclude HCE's.

(2) A bona fide termination and bona fide rehire might begin to sow some seeds of doubt. I have seen many windows which require the accepting employee to agree not to apply for employment with the company (or affiliates) for a period of 12 months. The details are fine tuning, but the point is that you offer a window only when you are really want some employees to go. If an eligible employee accepts, and the ER did not want to lose that person, then the ER will usually have a private discussion to convey that person's value to the organization. Rehire is not the usual course of action. At least it should not be.

[mbozek]

Early retirement window programs always include a provision that prevents the employee from applying for re employment for a period of 12 to 24 months after accepting early retirement to prevent side deals between the employee and his/her manager to circumvent the requirement that the employee terminate employment. Also any attempt by a manager to change an employees mind after the employee has decided to accept the offer for erw could be looked upon as coercion which violates the ADEA for employees 40 and older. Managers should be instructed not to talk to employees who are eligible for the window to avoid any implication that they attempted to influence the employee's decision in violation of applicable law. Otherwise the employee could claim that the mgr promised additional benefits if the employee agreed to stay.