Termination to receive distribution and then rehired

[Guest THess]

I have a client who has a participant who would like to take their money out of the plan. The plan does not allow for in-service, hardship, or loans. I have advised my client that these forms of in-service distributions are available and the plan can be amended to allow them.

They asked if they could terminate the participant long enough to take their distribution and then rehire them. I advised them against allowing the participant to terminate just long enough to receive their distribution and then return to employment. They would like to know if there is a cite that states that this is not permitted. I could not find where there is a IRC or Reg stating this specifically. Does anyone know if there is one?

Thank you so much for your help!

[WDIK]

Good Thread

[david rigby]

More earlier discussions; seem to be in agreement:

http://www.benefitslink.com/boards/index.php?showtopic=20733

http://www.benefitslink.com/boards/index.php?showtopic=20568

http://www.benefitslink.com/boards/index.php?showtopic=2901

[Guest THess]

Thank you everyone for trying. That's as much as I've always gotten out of it also...however, they were looking for a specific cite and it appears that there isn't one.

[david rigby]

I've always been impressed by the word "fraud".

[Guest Jennifer Reid]

What will they do when word gets out of this great way around the rules and they are barraged with similar requests from other employees who want to get their money out? If they think it will be "just this one", they don't realize the can of worms they would be opening. One call to the DOL by an employee who was denied the same deal is not something they want to invite.

[mbozek]

Jennifer: What is the jurisidction of DOL if other participants are denied the right to return to work since DOL oversight on ERISA is limited to employee benefits? If a participant terminates employment the plan can pay the benefits. The fact the employer will not rehire that employee is not a claim for a benefit that is subject to ERISA.

As far as an IRS review, rehire after termination is an audit issue which could affect the plan qualfied status so the employer would need a good reason for rehiring the employee since any employee can quit for any reason if he or she is an employee at will.

Of course the best solution is to allow for inservice distributions if available or plan loans.

[Guest Jennifer Reid]

Whether or not the DOL has any jurisdiction wouldn't stop a participant from reporting the fraudulent practice and could get the DOL just curious enough about the plan to initiate an audit.

[mbozek]

You still have not stated what provison of ERISA the employers conduct would violate. Paying distributions upon termination of employment is not a violation of ERISA.

[KJohnson]

I guess the real question is whether there has been a termination of employment if both the employer and the employee agree its a sham. If the plan document requires a termination of employment; the fiduciary knows that there has not been a termination of employment; but allows the distribution anyway you have a 404(a)(1)(D) breach of fiduciary duty.

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