rule of parity

[austin3515]

Employee with 7 years of service incurs 5 consecutive breaks and then gets rehired. Document uses rule of parity. Is that person forever grandfathered in to vesting and eligiblity, or will it at some point be disregarded?

[J Simmons]

Employee with 7 years of service incurs 5 consecutive breaks and then gets rehired. Document uses rule of parity. Is that person forever grandfathered in to vesting and eligiblity, or will it at some point be disregarded?

With 7 vesting years, he was completely vested in the pre-break accruals. Thus all were paid out to him. He needs no post-break vesting years to vest further in the pre-break accruals even if the EE repaid them into the plan during the 5 years of rehire.

As to post-break accruals, all vesting years--those earned both pre- and post-break--are taken into account. So he already has 7 vesting years and is 100% vested. No vesting years will ever be disregarded in vesting his post-break accruals.

[austin3515]

What about eligiblity?

[Guest Sieve]

All these years of service count for any participant who is vested (full or partial).

Even if this person is not vested (e.g., plan used 10-yr. cliff when he/she was employed and the plan was a PS plan long ago), the break period (5 yrs) does not equal or exceed the service period (7 yrs), so even in that instance the pre-break service would count for eligibility. (IRC Section 410(a)(5)(D).) Of course, nonvested participants will not have any prior service ignored unless the plan document so provides.

For John's vesting answer, he has assumed that neither 10-yr. cliff nor the old 4/40 is the applicable vesting schedule, and that this individual is already vested (fully-vested, in fact). The answer would be different, however, in those very unusual circumstances.

[J Simmons]

Yes, so assumed because going back 12 years (7 pre-break vesting years and a 5 year break) to 1997, and this is a DC plan.

[Guest Sieve]

True enough.

. . . But, what if there were a bunch of non y/s or b/s years crammed in there . . . ? (Just yanking your chain, John!! -- it's Friday, after all!)

[J Simmons]

True enough.

. . . But, what if there were a bunch of non y/s or b/s years crammed in there . . . ? (Just yanking your chain, John!! -- it's Friday, after all!)

Thanks, Larry. I'm glad to see someone is trying to fill the gap.

[austin3515]

Let's say the question is the same as before except: a) participant has just one year of service, and b) balance consists exclusively of 401k, c) participant leaves and comes back after 7 breaks.

Same answer, right? Employee re-enters the plan on date of hire and still has one vesting year?

[Guest Sieve]

Yes. 401(k) deferrals cause the terminated employee to be considered vested.

(&, the one-year wait permitted under IRC Section 410(a)(5)C), with retroactive participation, could not be used--I don't beleive--to prevent an individual from deferring).