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What is termination of employment in the multiemployer setting?

Guest JBeck

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How can a plan define termination of employment in the context of a multiemployer plan. Any guidance? I am aware that plans sometimes state that a one year period with no covered employment is a termination, and in a DC plan, the participant's account balance is distributed. Can the time period be shortened to 6 months without work? Can a plan permit partial distributions at 6 months without work but full distributions after 12 months without work?

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I work with a plan that the Trustees recently changed the plans distribution rules from a 5-yr w/ 0 hours to 6 months w/ 0 hours. They did it because work was very bad and the men needed money to live on.

They also decided not to allow partial withdrawals unless the participant was eligible for early retirement. The theory being that either they were terminated or they weren't. If they weren't really terminated, then the plan shouldn’t pay them anything to avoid an in-service distribution and it they were terminated - why pay the partial.

It worked for them and the men were very appreciative since it allowed them to get through a difficult stretch. We were talking about 50% of the guys weren't working.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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  • 15 years later...

I am new to working for multiemployer pension funds. I see a number of these plans are money purchase plans and they have a concept of deemed termination of employment, in which no contributing employer makes a contribution for an employee (for say, 6 or 12 months), then the employee is deemed to have terminated his/her employment. In the context of a money purchase plan, the IRS treats them as a pension plan and they require that the employee have a severance from employment. Thus, as applied to those types of provisions, the plan risks disqualification because there is no determination of whether the participant had a severance from employment. Is the IRS view on these deemed termination of employment provisions less restrictive in the collective bargaining context or should the deemed termination of employment provision in a money purchase plan be read as also requiring an actual severance from employment? Does anyone have any legal authority to cite for such a proposition?

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