Restoration of Forfeitures

[DP]

A formerly terminated participant has been rehired within two years of her termination. She had received a distribution of her vested account balance.

I sent her a notice about repaying her distributed amount within five years of rehire so her forfeitures could be restored. She is asking if she can pay back her distributed amount over time with payroll deduction.

I've been trying to think this through to see if it would be feasible. I realize the deduction should come from her check "after tax". I would not restore her forfeited balance until her entire distributed amount was paid back. What if she were to terminate her employment again before the entire amount was paid back? How would the partially paid back amount be classified? Should her paid back amounts be held in a suspense account until she pays it in full? The more I think about this, the more potential problems I see.

Maybe I should just tell her that payroll deduction is not an option??

I appreciate any input!

[Trekker]

Instead of payroll deduction, why not suggest she save that amount out of her check and set it aside in order to restore all at one time. She's asking you to do what she could easily do for herself.

[K2retire]

Instead of payroll deduction, why not suggest she save that amount out of her check and set it aside in order to restore all at one time. She's asking you to do what she could easily do for herself.

If she's already spent the original distribution, she probably couldn't do it herself. If she could , she would still have the original amount in an IRA somewhere.

[GMK]

Maybe she's thinking she can get a better return in the plan for her piece by piece savings compared to near-zero in a passbook account or CD. Not that plan earnings would help with her pay back, but ...

In any case, after tax contributions could be the deal breaker, unless you already have the record keeping procedures in place for them.

[Tom Poje]

GMK - it's more than just getting possible better earnings, it's the restoration of the forfeitures. you can't beat an instant return like that.

here is the problem I see with the situation (much less whether one can actually do it).

suppose she was 20% vested, and had $1000. so she had a $200 distribution and forfeits $800.

she returns and via payroll pays back, lest say, only 2.56 weekly and then quits again after x number of weeks.(but also works 1000 hours)

so now she is 40% vested.

how much of the forfeiture are you going to restore? an additional 20%???

[GMK]

I would not restore her forfeited balance until her entire distributed amount was paid back.

Yah, I thought about that too, Tom, but the OP indicated that forfeitures would not be restored until the whole distribution was paid back.

[GBurns]

I doubt that there is any way to stop the increase in vested % or to relate it to the restoration of the distributed amount. That is what I see as the problem.

[DP]

Thanks for all your comments. To ward off any future problems, I told the rehired participant that the distribution would have to be paid back in a lump sum.