Cash out & "Buy Backs"

[Guest RJM]

Does anyone have any real experience with "buy backs"; how you track them on the recordkeeping side?

[Guest]

Can you please give us a definition of "buy back"?

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Carol J. Ringwald

President

CJR Consulting Group, Inc.

[Guest RJM]

Participant is 40% vested in $1,000 balance. Terminates, takes a $400 payment, is gone for a few years, returns to same Employer (before incurring 5 consecutive 1 year breaks-in-service). Reads in his SPD that he can pay $400 to the Plan and "buy back" his $1,000 account balance. How is the Recordkeeper supposed to track his $400 buy back? What source of money would it be tracked under? Could it be a Rollover (rollback)? After-tax?

[Guest]

If the plan sponsor decides to forfeit the participant's non-vested portion prior to the 5 year break in service, then good records need to be kept for this. I've been in the defined contribution business for 15 years and I have yet to see a buy back.

We used our recordkeeping system to keep records, plus we kept a copy of all paper documents for at least 7 years for a plan. Therefore, if the participant came back within the 5 years we could rebuild their record on our system. You would need to track the dollars from the original source from which it came. Most recordkeeping systems track this as well.

But, as I said, I have never seen this happen, so most plans forfeit the participant's account prior to the 5 year break in service. Most recordkeeping systems can still track the forfeited amount in a participant's account until the 5-year break is met. At that time, the money is forfeited and reallocated to the other participants or used to reduce employer contributions, depending on what the plan document indicates.

Hope this helps.

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Carol J. Ringwald

President

CJR Consulting Group, Inc.