Rule of Parity / BIS Question

[KCA]

I have a profit sharing plan (no 401(k) provisions) with a 2-year service requirement; a One-Year Break in Service rule and a Nonvested Participant Break in Service rule (Rule of Parity) for eligibility.

A participant was hired in 1994, entered the plan in 1996 and terminated employment 1997 receiving a payout of their 100% vested account balance in 1998. Now in 2012 they are being rehired.

Question #1 – The Rule of Parity does not apply because the participant was vested when they first incurred a break in service; correct? The fact that they have not been a participant since 1998 is irrelevant; correct?

Question #2 – Since the plan also has a One-Year Break in Service rule the participant does not re-enter the plan immediately on the rehire date but instead retroactively to the rehire date after the completion of 1,000 hours; correct?

Question #3 – The vesting is full and immediate so they are immediately vested in the 2012 contribution. However, what if the plan required 2 years of service for vesting and had the One-Year Break in Service rule for vesting?

[ETA Consulting LLC]

I have a profit sharing plan (no 401(k) provisions) with a 2-year service requirement; a One-Year Break in Service rule and a Nonvested Participant Break in Service rule (Rule of Parity) for eligibility.

A participant was hired in 1994, entered the plan in 1996 and terminated employment 1997 receiving a payout of their 100% vested account balance in 1998. Now in 2012 they are being rehired.

Question #1 – The Rule of Parity does not apply because the participant was vested when they first incurred a break in service; correct? The fact that they have not been a participant since 1998 is irrelevant; correct?

Correct

Question #2 – Since the plan also has a One-Year Break in Service rule the participant does not re-enter the plan immediately on the rehire date but instead retroactively to the rehire date after the completion of 1,000 hours; correct?

Correct, but read the plan closely to ensure this provision for the one year wait on rehire exists.

Question #3 – The vesting is full and immediate so they are immediately vested in the 2012 contribution. However, what if the plan required 2 years of service for vesting and had the One-Year Break in Service rule for vesting?

Remember that all 'previous' service is being restored since the rules of parity doesn't eliminate the service (because they weren't zero vested when they previously left).

Good Luck!

[KCA]

Correct, but read the plan closely to ensure this provision for the one year wait on rehire exists.

It appears to be the case, the One-Year Break in Service provision was selected in the AA. The BPD states . . .

Rehired Employees. Subject to the Break in Service rules under Section 2.07, if a terminated Employee is subsequently rehired, such Employee will be eligible to participate in the Plan on his/her reemployment date

2.07(d) One-Year Break in Service rule. Under the One-Year Break in Service rule, if an Employee incurs a one-year Break in Service, such Employee will not be credited with any service earned prior to such one-year Break in Service for purposes of determining eligibility to participate under the Plan until the Employee has completed a Year of Service after the Employee’s return to employment.

. . . thanks for help!