Jump to content

"Retired" versus "Quit"


ldr

Recommended Posts

We recently received a census from a client where she indicated that all terminated employees separated from service.  No deaths, no disabilities, no retirement.  She reconfirmed this by phone.  At least in her mind, nobody was retired.

However, one person who quit fit the parameters to be considered "retired".  He is well over age 65 and had 5 years of service.  Our computer software is picking him up as retired instead of just separated from service.  In this plan, he will be eligible for a match and a profit sharing contribution he would not otherwise have received.

Does it make any difference that the employer considers him to be a person who merely quit?  Is it correct that once a person has satisfied the age 65 and 5 years of service this plan requires, and he leaves, he is retired, regardless of the circumstances when he terminated employment?

Thanks as always for any help here.

Link to comment
Share on other sites

It is driven by the plan document.

IF your plan document is like ALL the plans I see then this is true:

I have this conversation with clients all the time.  It doesn't matter if the client thinks they retired or not.   It doesn't matter if they give him a party and a gold watch.  It doesn't matter if they fire the person or they leave voluntarily.  In every plan I have read if the person separates from service  and is at or beyond Normal Retirement Age they will have a Normal Retirement Date.  As such they have retired.  All that matters is age and if required by the plan service and they are no longer employed. 

I have even seen examples where the person is rehired to do a small project a year or two later and then they leave again.  They just retired again and will another profit sharing contribution at least (in this case it is rare the person makes any 4k deferrals so match wasn't an issue) is due.

So read your document very carefully and see what the definition of Normal Retirement Age and Normal Retirement Date is.  Then read you allocation sections about allocations to someone who has reached either their Normal Retirement Age or Normal Retirement Date.  You will most likely (about 99.99% sure) you will find out this person retired per the plan document and is due a contribution. 

Not trying to be mean but this is a classic example of the answer really is in your document. 

Link to comment
Share on other sites

Hi ESOP Guy, 

I was already convinced that this was the case.  The adoption agreement clearly spells out that the NRA is 65, provided the participant has passed the 5th anniversary of participation in the plan.  Check.  The NRD is the date the person meets those 2 requirements.  Check.  The allocations go to those who have 1000 hours of service and are there on the last day, UNLESS they are dead, disabled or retired, in which case both restrictions are waived.  So to me, it was a done deal - the guy retired and is eligible for a contribution for his one month of service in 2017, no matter what the employer thinks.  I was asked to see what the rest of the community thinks about this and is doing, and you answered it beautifully.  Thanks!

Link to comment
Share on other sites

years ago we had a plan and the census file indicated the one guy died, so following terms of the document we gave him a contribution.

then they call and ask "why?", and pointed to the portion of the document that says if you die you receive a contribution.

The response was "But does it matter if he committed suicide?"

Link to comment
Share on other sites

16 minutes ago, Tom Poje said:

years ago we had a plan and the census file indicated the one guy died, so following terms of the document we gave him a contribution.

then they call and ask "why?", and pointed to the portion of the document that says if you die you receive a contribution.

The response was "But does it matter if he committed suicide?"

The lengths some folks will go to just to get a retirement plan contribution.

Link to comment
Share on other sites

Well...... to be accurate, it matters if the plan document says so.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

Link to comment
Share on other sites

3 hours ago, Tom Poje said:

Lou S -

at least you didn't say he did it to become 100% vested!

I've said it before, if all the stories we have dealt with over the years were collected it would make a great book. not sure if it would be considered horror, comedy or what. 

 

Perhaps tragedy?

Link to comment
Share on other sites

@ESOP Guy  Well thank you once again for your reply.  Unbelievable.  The very next plan I picked up to work on is an integrated profit sharing plan with a participant who meets the retirement requirements, who worked for the company for many years, but in the last couple of years has only done project work just like what you described in your message.  In 2017, he was "rehired" in April and terminated before the end of the year.  Normally if people don't have 1000 hours and are not there on the last day, they don't get a contribution.   But this man is considered retired (again), not merely terminated.   If you hadn't written what you did in your message, I don't think I would have known to put this guy (and the document) under a microscope to see if indeed he is due a portion of the contribution.

I can't unknow or unsee what you wrote - so now I have to go check it out!

Link to comment
Share on other sites

I don't have time to look it up now, but I'm sure that some documents provide that you can only get a "retirement" date allocation once. In other words, you can't terminate employment with less than 1,000 hours/last day,( assuming those are the allocation requirements) receive a contribution for that year, then get rehired the next year, terminate again w/less than 1,000 hours/last day, and get another allocation based on "retiring" again. The provision only works once.


But in other plans, it may work an unlimited number of times, although if it is a HC, perhaps that might cause issues. I've never had reason to worry about it, thankfully.

Link to comment
Share on other sites

Belgarath: go ahead and look it up and prove that there is such a provision.  I have never seen such a provision in the thousands of documents I have dealt with over the years.  There is something in the back of my mind that says this is not allowed, and I hope to find some time over the weekend to check it out.  Every time someone quits and has met the retirement age provisions, I believe he is retiring "once again" and the appropriate provisions apply.  Please try to find the specifics; a nice puzzle for the weekend.

 

 

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

Link to comment
Share on other sites

For the record, I did look through our basic plan document, which happens to be the Datair volume submitter, and I can't find anything that addresses any limit to the number of times a person can retire.  There doesn't seem to be any language about it one way or the other.

Link to comment
Share on other sites

Idr: that's what I would have expected.  I want to find the REASON why that is the case (I think there is a requirement in ERISA that applies).  

1 minute ago, ldr said:

There doesn't seem to be any language about it one way or the other.

I disagree; your plan has no limiting language. That means it does address it: every time you qualify under those provisions, you qualify since there is nothing that limits the application

.  

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

Link to comment
Share on other sites

I have never seen a limit either.  it tends to be age and/or mortality that limits this- ie- the person just decides they are too old to keep going back and doing projects or they pass away so they can't be rehired.  But I have never seen a limit via plan provision. 

Link to comment
Share on other sites

3 hours ago, ldr said:

@ESOP Guy  Well thank you once again for your reply.  Unbelievable.  The very next plan I picked up to work on is an integrated profit sharing plan with a participant who meets the retirement requirements, who worked for the company for many years, but in the last couple of years has only done project work just like what you described in your message.  In 2017, he was "rehired" in April and terminated before the end of the year.  Normally if people don't have 1000 hours and are not there on the last day, they don't get a contribution.   But this man is considered retired (again), not merely terminated.   If you hadn't written what you did in your message, I don't think I would have known to put this guy (and the document) under a microscope to see if indeed he is due a portion of the contribution.

I can't unknow or unsee what you wrote - so now I have to go check it out!

Glad it helped you serve a client better.  This is what this forum is about! 

Link to comment
Share on other sites

@ESOP Guy Oh my it just gets more interesting.  The client failed to report to us that the participant retired in 2013. He came back for a special project in 2014, 2015, 2016 and 2017.  Since we didn't know he left 12/31/2013, we treated him as a participant who didn't have enough hours to get a contribution in 2014 and 2015.  We gave him a 3% TH minimum in 2016 (the first year the plan was TH).  So now I have asked for the whole rehire and termination history for all the years and if I understand you and Larry correctly, he has retired 5 times, once each year 2013-2017.  So I believe he's due a makeup contribution for 2014, 2015, the difference between 3% and whatever the allocation was for everybody else in 2016, and a full allocation in 2017.  Whew!  It isn't much money, but it's quite some time to get it all straight.

Link to comment
Share on other sites

Larry - I think you are right, so I need to retract my statement. As I looked back in my notes from years ago, this was an opinion from an ERISA attorney on a document where the language was somewhat ambiguous, and attorney opined that '"retirement age" in this context only occurred once.

Our document doesn't contain any such language that says "once only" - I guess the only way to avoid this problem is not to waive the allocation requirements for people who terminate on or after NRD?

Link to comment
Share on other sites

@ESOP Guy I am going to "err on the side of the participant" (if indeed there is any error) and give him credit for retiring each year.  In the words of the client "the man officially retired 12/31/2013, but he has a wealth of knowledge, and he comes back whenever we ask him to, and he's a friend."   And we are talking about very little actual money here because the participant didn't make that much each year or work that many hours.  I bet it adds up to less than $1,000 altogether.  In an audit, the IRS would never ask us to take the allocations away from the participant.....

Link to comment
Share on other sites

55 minutes ago, ldr said:

@ESOP Guy I am going to "err on the side of the participant" (if indeed there is any error) and give him credit for retiring each year.  In the words of the client "the man officially retired 12/31/2013, but he has a wealth of knowledge, and he comes back whenever we ask him to, and he's a friend."   And we are talking about very little actual money here because the participant didn't make that much each year or work that many hours.  I bet it adds up to less than $1,000 altogether.  In an audit, the IRS would never ask us to take the allocations away from the participant.....

I agree giving him a full allocation is the safer route. 

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...