"Accelerated" Breaks In Service

[Guest sabre27]

Retirement law professionals:

After spending hours of research to locate any precedents or case law relating to "Accelerated" Breaks In Service to no avail, I thought I would also reach out to other experts in that community to see if anyone is familiar with this issue.

As we know, ERISA provides an "incentive" to former employees (EEs) of a company whereby the code requires pension plans rules allow formerly accrued balances of EEs to be "restored" as long as the EE becomes reemployed prior to reaching the "Five Year Break In Service" time frame.

We also know that whenever a company decides to amend their pension plan, such as in this case, to revise the plan year from one 12 month period to a new 12 month period, they must notify the plan participants within a reasonable time frame. For the pension plan in question, the plan year was adjusted from ending each year on 8/31 to ending each year on 12/31. The point at which that amendment took place (9/01)effectively created an additional "Short Plan Year" that was only 4 months long. For active participants in the plan, I gather the short plan year is an advantage that accelerates the EEs vesting and/or service credit time frame- obviously a good thing.

However, for the rehired EE that plans on returning to the company prior to the former plan's Five Year Break In Service schedule is realized, such an amendment would effectively "accelerate" the Break In Service time frame (e.g. an EE with only 4+ years of separation could potentially be deemed as exceeding the Five Year Break In Service because a Short Plan Year was squeezed into that period). Since any amendments need only be conveyed to active participants or retirees, any former EE that has plans to return to work prior to the Five Year Break In Service could still potentially forfeit their former balances and be treated as a new EE if they base their deadline for re-application and re-hire on the last known plan year schedule information. This circumstance does not seem to be addressed in the Code, but I suspect it has come up in prior litigation. I say this because although a Short Plan Year can benefit an active EE, it potentially can be a detriment to a returning EE- something I suspect ERISA did not intend when providing the incentive to EEs for returning to the company.

One could argue, it is either incumbant on the former EE to research with their former ER whether there has been any changes to the retirement plans prior to becoming a rehire or incumbant on the ER to notify a potential re-hire that is returning with the Five Year Break In Service time frame, that changes have occured and thereby may affect the decision by the re-hire applicant as to whether he or she should continue to persue being re-hired.

I would appreciate any professional insight or references that might clarify the government's position on this one...

Regards,

Brooke James

[SoCalActuary]

I have experienced enough changes in fiscal year to know that it is done for other reasons than break-in-service rules. None of my clients ever discussed that aspect of their change in fiscal period. It usually follows an accounting rule, although sometimes it allows an individual to accelerate their benefits in a very small plan.

If someone has the ability to time their re-employment, they must have a good reputation as a worker and a company that always has opportunities available. In many businesses, that is a rare combination.

With that background information, I believe you have the right focus in making the break-in-service issue a personal one. If the person wants to retain their prior benefit rights, then they need to look at the summary annual report each year, which discloses the plan anniversary. (Oops, that is going away....hmmm?)

Otherwise, the employer's web site might have info, current employees might have news, or the person can just ask the benefits department.