401(k) Plans and Reemployed Participants

[Guest Edward McElroy]

A individual formerly participated in a 401(k) plan and then terminated employment. The individual never incurred a break in service. The plan currently provides that an individual will be able to make deferrals as of the entry date following their date of hire. During 1999, entry dates were the first days of each calendar quarter. In 2000, the plan will have been amended to provide for a single entry date ... January 1. The individual in question was reemployed on November 10, 1999. Can he make deferrals immediately or does he wait until 1/1/99? Additionally, if an individual becomes reemployed on 1/5/2000, does the individual need to wait until 1/1/2001 to begin making deferrals? The plan is silent as to reemployed individuals. Any thoughts? Thanks. Ed

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[Guest mo]

Generally, if a participant terminates and is rehired without a break in service, I would proceed as if they hadn't left at all; in other words, I would let them in immediately and would not hold them to a subsequent entry date. One rationale (besides the legal one) is that it would open up an opportunity for the sponsor to bring about short periods of severance just to keep people out of employed status on their otherwise entry dates.

[John A]

I am not a 401(k) expert by any means, but I believe that, as a practical matter, I would have the former participant reenter on the date of rehire and allow them to make deferrals as of the date of rehire. I believe you technically could require a year of service to reenter but would have to make the participation date retroactive, which is impractical in a 401(k) plan. I'm not sure you can use an entry date later than the rehire date for a former participant with a 1-year break in service. What do others think?

[david rigby]

timing is important. In the original message, you state "in 2000, the plan will have been amended..." What do you mean by that? Do you intend that to be retroactive?

If the plan is actually amended on 1/6/2000, then the rehire on 1/5/2000 probably should not wait until 1/1/2001.

[Guest ptpnthr]

The individual must be allowed to participate immediately upon her or his return provided she or he did not incur a break in service. See Treasury Regulation Section 1.410(a)-4(B).