Immediate Entry for Rehire?

[Susan S.]

401(k) plan with entry requirement of 3 months of service. Dual entry dates - January 1 and July 1. Former participant was hired 12/12/96 and terminated 1/1/1999. He would have become 100% vested at that time due to a partial plan termination. I do not have records old enough to determine whether he had an account balance. He was rehired in 2014.

Document language (Sungard VS restated 1/1/2010): Reemployed before five consecutive breaks in service. If any employee becomes a former employee due to severance from employment with the employer and is reemployed by the employer, then the former employee's prior service shall count in the same manner as if severance from employment with the employer had not occurred. If any participant ceases to be a participant due to severance from employment with the employer and is reemployed by the employer, then the participant shall resume participation (in the same manner as if severance from employment with the employer had not occurred) as of the reemployment date.

Does this paragraph apply to him since he has more than 5 break years? Document doesn't spell out what happens for someone with more than 5 breaks. Vesting is not an issue since the current document provides 100% immediate vesting for all. But for eligibility, does he need to satisfy the 3 month service requirement again?

[Tom Poje]

the govt handout (for example page 7 of the pdf and elsewhere) clearly state the rule of parity applies to nonvested participants.

the ERISA Outline Book sums it up this way
2 V part C
2.d.Partially-vested participant. Note that once a participant becomes even partially vested (e.g., 20% vested under the plan's vesting schedule), there is no break in service rule that will permanently disregard his prior service for eligibility purposes. If a partially-vested participant incurs a break in service, the only rule that may apply is the one-year holdout rule discussed in 1. above, under which it is possible to get the prior service re-credited. In fact, the one-year holdout rule would apply even to a 100% vested participant who incurs a break in service.

ASPPA Conference 2011 Q and A #14
Does the Rule of Parity apply only to a participant who is 0% vested and incurs a 5 consecutive
breaks in service, or does it also apply to an employee who never became a participant and
incurs 5 consecutive breaks in service? What about the one-year break in service rule under
IRC section 410(a)(5)© (also known as the one-year 'hold out" rule)?
Our answer. Although the statute refers to the word "participant" the Rule of Parity does apply to a rehired employee
who incurred at least 5 consecutive breaks in service before being rehired, so that eligibility into the plan is
determined by disregarding all prior service and waiting until the rehired employee completes the plan's eligibility
requirements. To interpret the statute's use of the word "participant" to exclude non-participant employees who incur
5 consecutive breaks in service is to disadvantage employees who had become participants and accrued prior
benefits. The same rule is applicable for the vesting Rule of Parity as well. For consistency, the same interpretation
should apply to the one-year "hold out" rule.
IRS response. The IRS has not provided a response to this question.

ASPPA Conference 2010 (page 4 - questions not numbered)
Does the rule of parity for vesting permit the disregarding of years of service
for a rehired participant who was nonvested at termination in employer
contributions but had salary deferrals? What about someone who made no
deferrals but could have?
IRS response: If there is a vested amount, prior service cannot be disregarded, even if the vested account is
attributable to deferrals. IRC 411(a)(6)© and (D). However, if there is a vested percentage,
but no vested amount (i.e., no deferrals made in this example), the rule of parity does permit
prior service to be disregarded.

min partic standards publication 6388.pdf

[My 2 cents]

Does the plan document say anything about entry date for a participant who terminated with vesting and was later rehired? Many plans call for immediate reentry (i.e., no 3 months wait) when a vested participant is rehired, with service being bridged irrespective of the duration of the break. It may matter whether the person had been paid their account balance back then.