Failure to Suspend Benefits

[AAS2]

A participant in pay status returns to employer.  There is no suspension of benefits nor is a notice of suspension sent out.  Must plan recoup benefits that should not have been made, or can it provide notice, suspend future benefits until subsequent retirement and actuarially set off the benefits against future benefits?  

[My 2 cents]

[To be sung in the key of A]  What does the plan say? 

Does it say to suspend payments?  If so, does it call for issuing a suspension notice?  If it calls for suspending payments, at the risk of sounding churlish, why didn't that happen?

Does it say to continue making payments? If so, why wouldn't the payments just continue to be made?

If the plan doesn't say what to do, is there an established practice?  How does the plan administrator interpret the plan? 

I don't think that there is any legal or regulatory requirement that would mandate suspension of benefits.  If there had been a bona fide separation from service, I don't think that continuing payments after rehire would be considered to be an in-service distribution.

[david rigby]

Some plans suspend only if the rehire is prior to NRD.

Is the plan frozen?  If so, should the plan remove any suspension language?

[My 2 cents]

12 hours ago, david rigby said:

Some plans suspend only if the rehire is prior to NRD.

Is the plan frozen?  If so, should the plan remove any suspension language?

In general, it is my understanding that if a plan has frozen accruals, there should be no need to amend suspension language.  With proper notice, participants blocked from starting benefit receipt for working past NRD (if so provided by the plan) would legitimately receive nothing for the period of suspension even if the plan is frozen - no actuarial increase and no accruals.  This is, I believe, fully acceptable.

[AAS2]

The plan requires both suspension and notice.  The plan is frozen.  The period between separation from service and the date of rehire was ten years.

[My 2 cents]

Doesn't sound as though there is a problem to me.  The person was rehired.  In accordance with the plan (assuming that the required beginning date did not occur while the person was terminated), give the notice and stop making benefit payments.  If the person becomes subject to minimum distribution requirements while still employed, start the payments up again, otherwise don't make payments.  The plan being frozen, there would be no need to consider whether the benefit amount would require adjustment upon recommencement.

The only complication that could arise would be if the participant's benefit was being paid from a purchased annuity.

[david rigby]

Frozen for 10 years!  There is no more accrual, so why does anyone care about the suspension?  I suggest amending the plan to remove it.

[My 2 cents]

32 minutes ago, david rigby said:

Frozen for 10 years!  There is no more accrual, so why does anyone care about the suspension?  I suggest amending the plan to remove it.

The difference is that, frozen plan or not, a previously retired participant should not (presumably) be able to both get paid and collect ongoing pension amounts unless the sponsor wants the participant to continue receiving pension benefits while actively employed.  What reason would there be for eliminating the suspension of benefits during rehire?

Also, it is not clear that the plan has been frozen for 10 years.  Possibly the participant started receiving monthly benefits in 2006, the plan was frozen in 2014, and the participant was rehired in 2016 or 2017. 

[AAS2]

The plan was frozen in the year in which participant terminated employment (2004).  Began to take early retirement benefits immediately.  Eleven years later was rehired.  Has been working over a year and is now over NRD but under 70.5.

Is this just an overpayment issue that can be resolved through EPCRS and return to plan trust of distributions either by participant (if possible) or employer (or other third party)?

[AndyH]

I've never heard of recouping payments that weren't suspended due to failure to issue a SOB notice.  What I have heard, from an ERISA attorney, is an argument that once the first month has elapsed a late SOB notice is no longer valid, especially if this is what the plan requires.  

This is obviously is a question for an attorney, but in my experience: no SOB notice, no suspension.

[david rigby]

No matter what the resolution of the original post, I suggest rethinking the plan provision that requires suspension.

Who cares if the retiree/employee gets paid and collects a pension?  Is that such a bad thing? This is an HR policy issue (ie, do we want to rehire this person?).  A mandatory suspension, when there is no more accrual, may serve only to interfere with corporate HR policy and/or a desire to rehire someone.  The Plan provisions should align with corporate philosophy. 

The mindset of "suspend on rehire" is probably a carryover from the mindset that (a) the company will always exist, (b) the plan will always exist, and (c) all employees work full-time.  Obviously out-of-date.

This is an especially awful plan provision when the plan uses a very low hours requirement to determine "rehire", such as "at least 20 hours per week".  This example may help (and it doesn't matter if the plan is frozen): Imagine a retired bank teller, who is glad to help out in the summer months, when other tellers take vacation.  The rehired teller works 40 hours a week for 10 weeks.  The retiree is happy, and the employer is happy.  Although the retiree works full-time hours, the total hours is no-where close to earning additional accrual.  Suspending the benefit serves no purpose whatsoever.  Some plans (and some consultants) are unable to make that distinction.

Forest?  Trees?

[AAS2]

I think that "Two Cents'" answer is relevant.  This participant took a single life annuity that presumably should not be paid out during the period of re-employment.

 

He is receiving assets that belong to the plan.  Isn't this an overpayment?

 

 

[fiona1]

Like AndyH said - no notice, no suspension. I don't think you can claim that these amounts "should not have been paid out" if the plan did not provide proper notice. If the notice WAS provided timely but someone forgot to shut off payments, then in that case I can see an argument to perhaps treat this as an overpayment.

I believe the same theory applies to late retirement suspension. Some plans choose not to increase a benefit if an employee works past NRD. In order to do this, however, the plan must provide notice. If the notice is not provided when the employee reaches NRD, the plan must generally provide an increase for the time period in which the notice was not provided.