SPD and rehires

[Guest Serena]

Employees of hotel chain were laid off, now they are being rehired. They were previously eligible for the 401k plan. Layoff was for a year or less. Since 1300 are being rehired, the cost of distributing another SPD is very large.

Since they previously received an SPD, does another one have to be issued? There were no material changes to the plan (however maybe the document changed to the EGTRRA restatement)

Any thoughts?

[BG5150]

From ERISA Outline Book, Chapter 13A:

2.a.1)Rehired employees. Suppose a participant quits (or is otherwise terminated) and later is rehired by the employer. Upon rehire, the individual recommences participation in the plan. Is a new SPD required to be distributed? This question was posed to the DOL by the American Bar Association (ABA). See Q&A-12 of the 2004 Joint Committee of Employee Benefits Meeting With Department of Labor Staff (April 26, 2004), available at the ABA's website. In the ABA's question, the facts also stated that there was a brief period (e.g., 30 days) between the employee's quit date and the employee's rehire date. The DOL responded that the plan would not be required to automatically furnish an SPD to a rehired employee who recommences participation in the plan. The decision of whether to furnish the SPD would depend on whether the individual's status as a participant covered under the plan changed as a result of the termination of employment. The definition of a participant for purposes of Title I of ERISA is different for employee pension benefit plans and employee welfare benefit plans.

2.a.1)a)Rehired employee under an employee pension benefit plan. In the context of an employee pension plan, an individual ceases to be a participant when the participant's entire vested benefit has been distributed See DOL Reg. §2510.3-3(d)(2)(ii). Thus, if prior to his rehire date, the benefit was completely distributed, then the rehired employee is treated as a new participant when he recommences participation in the plan and an SPD is required to be furnished. Conversely, if any portion of the vested benefit remained undistributed as of the rehire date, no SPD would have to be furnished merely because the rehired employee recommences active participation in the plan. The length of the absence is relevant only in that, the longer the period before the rehire date, the more likely distribution of the vested benefit will be completed prior to the rehire date.

2.a.1)b)Rehired employee under an employee welfare benefit plan. In the context of an employee welfare benefit plan, an individual is no longer a participant on the earliest date when the following two conditions are satisfied: (1) the individual is ineligible to receive any benefit under the plan even if the contingency for which such benefit is provided should occur, and (2) the individual is not designated by the plan as a participant. See DOL Reg. §2510.3-3(d)(2)(i). Again, if, as of the rehire date, the individual is no longer a participant under this definition, then a new SPD would need to be furnished. It should be noted that in the DOL's response to the ABA's question, it was not sure on the impact of COBRA continuation coverage where coverage under a health plan terminated but, before the rehire date, was reinstated by the individual through the exercise of continuation coverage.

2.a.1)c)Updated SPD may be necessary. Even where an SPD need not be furnished to a rehired employee under the rules described above, if the SPD has been modified prior to the employee's rehire date, an updated SPD might need to be furnished if it had not already been furnished prior to such date. The updated SPD rules are discussed in 3. below.