Rehired EE matter gets complicated by prior document language

[katieinny]

There's more to the rehired employee question that came up last week. I didn't have all the information then. An employee is rehired after an 11 year separation in September 2008. He was a participant when he left in 1997, but 0% vested. The current plan document (effective date of 10/1/08) says rehired employees who were participants when they left shall enter the plan immediately on the rehire date. The prior document that was in effect when the employee was rehired says that anyone gone 5 years or more shall have to meet the eligibility requirements (1 year of service) again. The current document took over just 3 weeks after the rehire date.

Naturally, the employer's position is that the document that was in effect on the rehire date should prevail. It turns out that the extra year's contribution is several thousand dollars, so I would like to get some thoughts from my peers. Thanks for your help.

[Guest ERISA01142002]

There's more to the rehired employee question that came up last week. I didn't have all the information then. An employee is rehired after an 11 year separation in September 2008. He was a participant when he left in 1997, but 0% vested. The current plan document (effective date of 10/1/08) says rehired employees who were participants when they left shall enter the plan immediately on the rehire date. The prior document that was in effect when the employee was rehired says that anyone gone 5 years or more shall have to meet the eligibility requirements (1 year of service) again. The current document took over just 3 weeks after the rehire date.

Naturally, the employer's position is that the document that was in effect on the rehire date should prevail. It turns out that the extra year's contribution is several thousand dollars, so I would like to get some thoughts from my peers. Thanks for your help.

Could it be that the current document allows an employee to enter on their rehire date only if they do not incur a break in service within that plan year prior to the rehire date?

[GMK]

Biggest concern for me would be that not operating the plan according to the plan document can have severe consequences.

One could argue (unsuccessfully, I think) that the restatement had been approved by the employer by the time the employee was rehired (if it had), so the new rules were acceptable to the employer at that time. And if no one else was rehired about that time, then the employer could be generous to this one person. You'd also have to consider, however, if making the rehired person immediately eligible was fair to the other participants.

All in all, I'd stick with following the plan document in effect at the time of the rehire.

[ESOP Guy]

I am a little unsure of the timeline, but this might help.

When you restate a document you are SUPPOSED to document the effective dates of all prior changes that affect the current plan back to the restatement date.

Simple example:

The most recent restatement signed in spring of 2010 was for a restatement that could be effective all the way back to 2002. So if one amended the old plan in 2005 when you write the restated document you are suppose to note in the plan the provision in effect from 2002 to 2005 and then the provision from 2005 forward.

I have an ESOP document that was recently restated that in the eligibility section has three different provisions that depend on what years in the past you were hired. Those changes match up to the amendments to the old document.

So I guess the question is did the restated document show the effective dates of the old provision and the new provision? If it does than that would seem to be how one should answer the question. By the way if this is a prototype you might want to search in the plan provision appendixes for the noting of the effective dates. We use the Relius document and there is an appendix dedicated to just those effective date changes.

If it doesn’t note the effective dates of the provision changes it might turn out you have a poorly drafted restatement. In fact I have always understood it if you don’t note all those effective date changes in a restatement you have a serious document problem. But I suspect there are people who read and comment on this board that can speak more to that than I can.

[K2retire]

If it doesn’t note the effective dates of the provision changes it might turn out you have a poorly drafted restatement. In fact I have always understood it if you don’t note all those effective date changes in a restatement you have a serious document problem. But I suspect there are people who read and comment on this board that can speak more to that than I can.

While I agree with your first sentence above, I am continually amazed at how rarely I see it actually done that way.

[katieinny]

In this case, the employer switched providers sometime during the 2008/2009 plan year (plan year is 10/1 -- 9/30), so the effective date of the restatement reverted to the first day of the plan year, 10/1/08, which happened to be just 3 weeks after the employee was rehired. Of course, there are differences between the two prototypes. I'm betting that nobody even thought about how the language in the underlying basic plan document might differ from the prior document's language. Typically, the focus would be on making the right selections in the adoption agreement. Who knows if the employer was even thinking about restating the plan when the employee was rehired. The subject might not have come up for several more months.

I agree with GMK's response to follow the plan document in effect at the time the employee was rehired, but since that means that the employee would not enter the plan on his rehire date, and would not get a contribution for the 2008/2009 plan year, I was looking for some support. I would like to find something in the regs that would support that position as well, but it seems like such a unique set of circumstances that I'm afraid I won't be able to find anything that definitively says the document in place at the time of rehire prevails.