"Completely Retired" Requirement

[Fielding Mellish]

Plan says that in order to receive a retirement benefit, participant cannot work for a contributing employer for 90 days from the effective date of the participant's retirement.

So participant retires from Employer ABC on January 1, 2016 at age 65 (the Plan's normal retirement age). Per the Plan's rules, participant cannot go back to work for Employer ABC for 90 days. On day 91, participant can go back to work for Employer ABC. Assume normal suspension of benefit provisions aren't applicable.

Is the 90 day provision permissible?

Thanks.

[david rigby]

How can the Plan dictate employment policy?

[SoCalActuary]

It doesn't dictate employment policy, only retirement benefits. It simply gives incentive.

[BG5150]

So, someone at 66 who is still working at the company cannot take his/her retirement benefits?

[GMK]

^ In some cases, BG, that is true.

[Effen]

This sounds like a multiemployer situation?

Either way, regardless of what the plan says the IRS/DOL will ask, "did the person intend to retire when he left employement, or did he always intend to return on the 91st day.".

If he intended to return, and the plan knew he was intending to return, then the plan could have a significant problem with paying in-service distributions. Since there was no separation from service, there should have been no benefit payment. The "90 days" used by the plan is probably intended to protect it from this situation, but I don't think any bright line test exists in the regulations.

If the plan didn't know he intended to return, then there is no problem paying the retirement benefit, but if it doesn't allow in-service distributions, they should suspend the benefit payments in accordance with their suspension of benefits rules. Usually this involves working more than 40 hours in a month or 7 days in a month in the same geographical area . Therefore, he would retire and collect his benefit, then get re-hired and his benefit would be suspended. Major administrative pain!

If this person is over age 62, and if the sponsor is ok with the practice, the easiest thing would be to amend the plan to allow in-service distributions at age 62, regardless of employment status. Then, if they are over age 62, you don't have to play these silly reindeer games.

[A Shot in the Dark]

Our office sees many variations of these types of provisions in Taft Hartley Plans.

[Effen]

Our office sees many variations of these types of provisions in Taft Hartley Plans.

Tru dat

[Fielding Mellish]

Thanks all for your responses. I failed to mention this is a multiemployer plan. Sorry about that.

We run into this issue more for people who retire prior to normal retirement age. For example, if a plan has a 30 and out benefit, or if an early retirement benefit is heavily subsidized. I know PLR 201147038 talked about people taking advantage of an early retirement benefit solely to lock in benefits, then return to work the next day, or soon thereafter, with their benefits being suspended under 2530.203-3.

I just wanted to see if you guys knew of any prohibition to the 90-day rule for someone who is at or over normal retirement age.

Thanks again.

[Effen]

I know of several funds who ran into a significant amount of problems (law suits/audits) by paying early retirement benefits to people who weren't actually retiring. People who "retired" from covered employment on Friday were being rehired by the same employer on Monday to do a slightly different job that was not covered employment under the union contract. They had lots of rules and procedures, but it still blew up on them.

Your "90 day rule" is only a plan rule, it isn't in the law or regs, so tread very carefully - especially on early retirements.

Obviously, this is a fund counsel issue. It will ultimately be the lawyers who have to defend it one way or the other.

[Fielding Mellish]

Yes, very touchy subject. I believe the Plan's benefit application requires a signature attesting that the participant's intent is to retire and not return to work.

[My 2 cents]

The biggest problems would arise if the plan would not provide for in-service payments and the person "leaves" with the intention of returning to work, especially if the employer plans to permit that. The IRS uses the term "sham transaction" to describe actions like that designed to get around limitations on the participant commencing benefits without separating from service.

With respect to multi-employer plans, the problem is more along the lines of people gaining an unfair competitive advantage over other union members by receiving benefits AND continuing to work.

Outside of the Taft-Hartley context, there can be no such thing as a "completely retired" requirement. If the participant - employer relationship has been cut, then even going to work for a competitor cannot bar the participant from claiming retirement benefits (although if there are non-compete agreements in place, doing so could result in other issues).

[AndyH]

Misuse of this type of provision can (does) add to underfunding/added withdrawal liability/litigation etc, all the more reason to involve legal counsel IMHO.