The old retire, distribute, rehire sham

[Randy Watson]

I'm looking for a discussion of the issues surrounding the sham where an employer has an "understanding" with a retiring employee to rehire that employee soon after the employee receives a distribution from the employer's qualified plan. Anyone know of any secondary sources that address this sham? How about a discussion of methods used to prevent this from occurring...such as a rehiring policy?

[WDIK]

Several good discussions and references are available in some of the boards older threads.

http://benefitslink.com/boards/index.php?s...opic=21907&st=0

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

[No Name]

Don't forget the divorce, QDRO, re-marry scam.

[R. Butler]

Don't forget the divorce, QDRO, re-marry scam.

That seems like an awful risky scam to me.

[WDIK]

That seems like an awful risky scam to me.

However, not quite as risky as the die, receive death benefits and insurance proceeds, rise from the grave scam.

[No Name]

Harder to get re-employed with Death, 2004-2005, on your resume. Believe me, I know.

[Randy Watson]

Based on the performance of some individuals, I'd say that the death scam has been pulled off.

The threads were helpful, but I was looking for a treatise, practice guide etc. Also, is there a reason why I'm having a tough time finding a discussion of this scam?

[mbozek]

No one writes treatises or articles on situations where there is no precedent because there is no way to provide learned answers. This is one of those "if a tree falls in the forest and no one hears it is there a sound" questions since it is not easily detectible on audit and for which there is no specific prohibition under applicable law. In the post IRS reform act world how can an auditor cite a plan for such a practice if there is no IRS authority that prohibits it. In todays world it is not unusual for employers to rehire former employees so how would an auditor determine who left to collect retirement benefits.

Why are you interested in this odd topic?

[Randy Watson]

I'm interested b/c this has happened more than once. Typically, a supervisor who knows nothing about the bona fide termination rule promises reemployment to an employee after retirement. The plan administrator who is totally unaware of the arrangement processes the distribution only to find the retiree back at work a soon after termination. What do you do to fix it? How do you prevent it?

[david rigby]

Fix?

If the benefit is payable as an annuity, you stop the payment, assuming the plan has the (very common) provision to do so. If a lump sum has already been paid, probably no action possible.

Prevent?

Ahh, there's the rub. If it were simple to do so, this discussion would not exist.

[Randy Watson]

I hear you. Thanks.

[No Name]

As an aside, I have a plan where the participant quit. Got paid out. Six months later, Dr. begs her to return to fill in. Works > 500 hrs and gets more $. Quits again, paid again. Begs again, returns, but this time works less than 500 hours. Whew. Tough finding good people.

[mbozek]

Why is that so bad? Companies rehire retired employees as independent contractors performing the same duties the day after retirement to keep them off the employee count.