Rehired EE

[david rigby]

Employee terminated employment in 1988 (25% vested). EE received a lump sum distribution in 1995. Now rehired, and re-terminated.

Refer to IRS Reg. 1.411(a)-7(d)(4). http://www.access.gpo.gov/nara/cfr/cfrhtml...26cfrv5_00.html

Last paragraph of subsection (ii) indicates that a distribution due to participation is defined as not later than the close of the second plan year following the plan year or termination of employment. Does that mean that a lump sum paid at a later date voids the conditions given to disregard prior service?

[Belgarath]

I don't think so. We had some discussion of this a while back. It came up because of a plan termination on a DC plan, and the IRS reviewer said that the payment (made in the 3rd year) was not on account of termination of employment, but due to termination of plan, (which took place in the 4th year) and required 100% vesting.

But for your question, I would not interpret this regulation to preclude use of the normal rules for crediting prior service in a DB plan. So I'd say that since he was partially vested when he terminated, he'd have his prior service recognized, subject to the rules to avoid duplication of benefits. He'd have to offered the opportunity to repay the distribution, and if he does, then prior service should be credited. It doesn't make sense to me to read the regulation to require duplication of benefits, which is what happens, I think, if you read the reg to override these requirements.

What do you think? I'd be very interested to see what conclusion others reach, because we played badminton with this one for a while...