Disregarding Prior Service for Rehired Employee

[stbennet]

A terminated employee in a plan without any repayment provision is 100% vested and receives a full lump-sum distribution, and is subsequently rehired before a 5 year break-in-service.

It seems that the plan repayment provision is not necessary since he received a full distribution. Can his prior service be disregarded?

[SoCalActuary]

Benefit service can be disregarded. Vesting service must be retained.

[Andy the Actuary]

The plan can still require a one-year wait to reparticipate.

[david rigby]

What does the plan say?

[stbennet]

The plan can still require a one-year wait to reparticipate.

Thank you. That at least was covered in the document. Average compensation is significantly less after re-hire, so it was unclear if the accrued benefit should be calculated using the old comp and offset by the distribution or recalculated using the newer average compensation.

[Andy the Actuary]

It is common for DB plans to be silent regarding the calculation of average compensation for a re-hire. Suppose, for example, the plan says service attributable to a distribution is disregarded blah blah blah but the plan does not address includable compensation. In such case, follow the Plan, which would mean in the case of a plan calling for high consecutive average 3-years, use the average (if higher) used to compute the benefit on which the lump sum distribution was based. You would have no basis for doing otherwise.