Termination of Employment vs. Retirement

[chris]

Does provision regarding early retirement in a profit sharing plan subsume an otherwise regular termination of employment for purposes of allocation conditions? Participant quits job mid-year and goes to work for another employer and participant happens to satisfy the age/service provisions for "early retirement" under the PSP. PSP is a calendar year end plan and has a last day of the plan year employment requirement, however, it waives such requirement for death, disability and retirement (early, normal and late). Based on the facts, it appears that participant terminated employment but did not "retire" and thus would not be entitled to an allocation of the PSP contribution. Any thoughts? Thanks.

[david rigby]

Normally, a plan will define early retirement. Most often, it is something like "severance of employment after age X with at least Y years of service."

You must determine the facts of your situation and compare to the plan provisions.

BTW, I've never seen a qualified plan that defines "retire" by including something about "no longer working anywhere".

[chris]

Understood. Thanks for your reply. "Early retirement" under the plan requires age 55 and 6 years of service. Plan sponsor's issue is that the participant didn't in fact retire in the normal sense of the word, but rather went to work for the competitor across the street and, thus, plan sponsor is of the mind that the waiver of the last day of the plan year requirement for an allocation does not operate because the participant did not "retire". Document is a Sungard/Corbel IDP Volume Submitter PSP document.

[david rigby]

Doesn't matter that the plan sponsor thinks, only what the plan provides.

Your situation is a great example why plan sponsors should think long and hard before they put any early retirement provision in a plan. Six years of service is a very low threshold; it probably reflects the TH vesting schedule, which is a nonsense reason for choosing it as an ER trigger.

[Lou S.]

I agree with Rigby. Seems like a pretty black and white issue if he meets the age and service condiction.

[chris]

Thanks to both of you for your replies.

[My 2 cents]

If you mean sashay over permanently to a rocking chair, say so!

Coming at this from a defined benefit perspective, anyone leaving the employer's service on or after meeting the age and service requirements for early retirement has elected an early retirement date, even if choosing to not immediately commence benefit payments, and whether or not they go to work somewhere else, including the arch-enemy of the sponsor's owner.

One presumes that in the case at hand, others may have left after meeting the age and service requirements for early retirement without actually withdrawing from employment (albeit not so brazenly as this person, who went to work across the street for a competitor). How were they handled? If someone left to go run a charming bed and breakfast, were they denied the exemption? To start working at an unrelated business? Let's just say that if there have been precedents set, to try to stick it to this ingrate might not be that defensible.

One presumes that there are no non-competes in the picture.

[ESOP Guy]

I tell clients all the time in most documents if the person meets the age/service requirements they have retired under the plan. It isn't about giving the person a gold watch or calling it retirment or in this case what the person does after they leave the employere.

In fact if you read Riby's definiton which is common if you fired the person and they were of the right age and service they just retired.