"Special Leave" and Continued Benefit Accruals under DB Plan

[Guest confused1]

I've been informed of a situation and I'm trying to determine its legitimacy. I think (but I’m not certain that) I’ve narrowed it down to the following issue:

Issue: Can an individual continue to accrue benefits in a DB plan if that individual has separated from service?

Background: Employer has instituted a “special leave” program whereby employees volunteer to be placed on “special leave” status and no longer perform any work for the employer. Individuals participating in this program, however, continue to earn/accrue benefits under the DB plan until they reach NRA, up to 7 years (whichever is less). Don’t you have to be actively employed to earn these benefits? Employees are not granted “additional years of service” as is the case in some early retirement programs. Instead, they continue to earn/accrue benefits

These same individuals will be allowed to continue participating in the employer’s 401(k) until they reach NRA or 7 years (whichever is less). They also earn w-2 compensation throughout this same time period.

With respect to the 401(k)s, I think the answer is clear: I.R.S. Regulation 1.415©-2 generally provides that payments received after a severance from employment cannot constitute “compensation” from which an individual may electively defer into a 401(k) (subject to certain limited exceptions, e.g., received within 2 ½ mos, etc.).

Does anyone have any thoughts on this weird situation? Perhaps the issue is whether these individuals are truly separated from service if they continue to earn w-2 compensation?

Thanks!

[SoCalActuary]

The use of language here is interesting. Special leave is being treated differently from separation from service.

In a sense, these are still employees getting compensation and benefit credits.

I would love to have a job like that. All pay, no work, no stress.

[david rigby]

I agree with SoCal. If these EEs are in "special leave", they do not have a separation of employment. If so, the ER may have other problems: treating them as terminated for one purpose and not terminated for other purposes.

Any possible discrimination in favor of HCEs?

Is this "policy" dictated by a CBA?

[Guest confused1]

I agree with SoCal. If these EEs are in "special leave", they do not have a separation of employment. If so, the ER may have other problems: treating them as terminated for one purpose and not terminated for other purposes.

Any possible discrimination in favor of HCEs?

Is this "policy" dictated by a CBA?

Yes, this was all done pursuant to a CBA. Thanks.