Rehired Employees

[Chippy]

Plan uses Rule of Parity.    Exclude eligibility service before a period of 5 consecutive one year breaks in service if an employee does not have any nonforfeitable right to the account balance derived from Employer contributions.     Does not have a one year holdout. 

The employee is eligible to enter the plan on his rehire date if vested when terminated.   

My question is, is there a limit as to the number of years an employee is gone from the company so that his prior service will not count for eligibility?   

Employee is terminates in February 2005 and was 60% vested.     He is rehired in 2014.   He was gone for 9 years.    

Can an employee be rehired after 20 years and will that prior service count?   

 

[Tom Poje]

Code Section 410(a)(5) Breaks in service

(A) except as provide in (B), (C) or (D) all years of service shall be taken into account

 

(B) is the 2 year 100 vested rule so doesn't apply

(C) is the one year hold out rule.  This is nasty. you disregard all years until ee completes a year. but then once that is attained, you restore all years so retroactively he was eligible!

(D) Nonvested participants - so the rule of parity only applies to nonvested participants

 

ERSIA Outline book sums it up as [Section C, part V of chapter 2]

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

[Tom Poje]

I would add the following possible exception, comment from the 2010 ASPPA Q and A (assuming the IRS officials are correct in their interpretation)

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?

 

If there was a vested amount, prior service cannot be disregarded, even if the vested account is attributable to deferrals. IRC 411(a)(6)(C) 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.

 

[Chippy]

Thank  you Tom.   That's what I thought, just like confirmation.