Quit and rehired - rules for termination?

[Guest Michael Anderson]

Employee A quits her job. She calls to start her termination process from the companies Safe Harbor Plan, wishing to cash out. Her company has hired someone to replace her and then quickly fires the replacement. She has been asked to come back part time for a while. She does. She has only been terminated from the company for a little over three weeks. She has not had a break in service and continues to fulfill the eligibility requirement, therefore she is entitled to continue in the Plan, but the question is... Can she continue her termination process and cash out??? Thanks for your help.

[pmacduff]

This question has been around for a long time and I'm sure you will find all types of answers! In your scenario, our Company would recommend that the Trustee not allow the distribution to occur because the participant is back to work and resuming participation. i.e., at this point, it would be an "in-service distribution" and unless the plan allows for it and she meets the criteria for an in-service, you would not be following the terms of the plan document. I know others have very different (and passionate) views on this, but this is how we would handle it. [see related threads on participants who terminate to receive their distribution on the premise they will be rehired - sorta similar.]

[RCK]

I agree with pmacduff. (I come from a large employer perspective). We would not continue the distribution processing unless she was at least 59 1/2. In our situation, I think that the result is clearer, because we would have automatically restarted her deferrals on rehire at the deferral percentage she went out at.

RCK

[Alf]

Unofficial IRS safe harbor is to look at employment status at time of distribution (assuming it is not a pre-arranged plan). If the distribution went through before re-hire, fine. If not, no distribution. However, you cannot quit, rush a distribution, and then rehire the person if it is all just a prearranged deal. No cite, but that is what the IRS says on the circuit and it is logical.