My new doc has "deemed severance of employment"

[Jim Chad]

What does "deemed severance of employment mean"? and do we want to allow distributions for it?

[My 2 cents]

Some context might help (including information as to what the document means by that troubling expression and what it says one can or should do when employment is deemed severed).

[BG5150]

It has to do with HEART and participants leaving for active military duty.

I think that if they are gone for more than 30 days, they can take a distribution from the plan as if they severed employment.

Don't quote me on that. Just something probably half-remembered...

[masteff]

2 points for BG5150! It does appear to be HEART related http://www.irs.gov/irb/2010-06_IRB/ar09.html

[Jim Chad]

Thanks folks. This was really bothering me.

[Jim Chad]

I'm inclined to always recommend yes for "allowing distributions for deemed severance of employment". Does anyone see any drawbacks to this?

[John Feldt ERPA CPC QPA]

Agree with yes - who wants to deny a an employee on military leave the option to withdraw some of their plan money?

[SearchLight]

One thing to note is that once you've added it, it's a protected benefit. And as with all protected-benefit issues, it tends to rear its head during a plan merger or the transition to a new recordkeeper that doesn't support it well. It's a small thing, but easily overlooked when you're dealing with a raft of more pressing quandaries.

The other, which is likely moot in most instances, is that you have to impose the 6-month deferral suspension like you would under the safe harbor hardship regs. The downside of it almost never having a practical impact is that the one time it does, you probably won't catch it until the mistake has already been made.