termination and rehire

[Guest koolkidd]

Where is the IRS guidance for the following situation:

A non-union employee is eligible and participating in a qualified plan. He terminates employment and two months later is re-hired as a union employee at another division. As a union member, under plan terms, he is not eligible to participate in the plan.

Can he take a total distribution from the plan at any time now because he had a separation from service?

He had an loan outstanding at the time of his termination. If he does not take a distribution, am I obligated to resume withholding loan repayments from his pay?

[ccassetty]

No, he cannot take a distribution because of termination of employment because he is not terminated, he is currently employed. If he had requested and received a distribution during the two months he was gone, that would have been OK, but now that he is back at work, termination of employment will not work as a reason for distribution.

On the loan, without being able to see what your plan says about loan administration, it is hard to say. So, be sure to read the plan document, the plan's written loan program and the participant's loan agreement thoroughly to be certain you are handling the situation correctly. My best guess is that if the loan has not already been defaulted, you should begin taking loan payments again from the participant's check, with some sort of arrangement to take out additional amounts until any missing payments have been made up.

[Blinky the 3-eyed Fish]

You don't state what the eligibility requirements are for the union plan or how long the employee has been employed, but are you sure he is not eligible? Service while employed under an excluded job classification counts toward eligibility. I don't believe there are different rules on this because the exclusion is union or non-union.

[Guest koolkidd]

The eligibility is immediate. The plan benefits non-union employees only.

[Blinky the 3-eyed Fish]

I was concerned with the union plan's eligibility.

[Guest koolkidd]

The union plan eligibility is immediate.

[Blinky the 3-eyed Fish]

As a union member, under plan terms, he is not eligible to participate in the plan.

I now realize you were talking about the non-union plan. Nevermind.

[JanetM]

As this is control group issue, why not just transfer his balance from non-union plan to union plan. They way he can pay on the loan. Do your plan documents permit tranfer between plans?

[ccassetty]

Are you saying that unless his plan balance is transferred from the non-union to the union plan he can't make loan payments? I have to disagree. Just because he is no longer eligible to make deferrals, I don't see why he can't make loan payments.

I agree that it would be easier if the money can be transferred to the union plan providing that both plans allow for it.