Breaks in service while still employed

[Loves401(k)]

Someone was full time and has received discretionary non-elective contributions.  They are now seasonal and working 300 hours per year.

Plan doc says forfeit after 5 Breaks in Service.  Would you forfeit while still employed?

 

[Tom Poje]

what does the document say?

The FT William document has (emphasis mime)

(b) Participants Not Receiving a Distribution. The nonvested portion of the Account balance of a Participant who has a Termination of Employment and does not receive a complete distribution of the vested portion of his Account shall be forfeited as soon as administratively feasible after the date he incurs five consecutive One-Year Breaks in Service (One-Year Periods of Severance if the Plan uses the elapsed time method); but no later than the end of the Plan Year following the Plan Year during which such break in service occurred.

[Larry Starr]

2 hours ago, Loves401(k) said:

Someone was full time and has received discretionary non-elective contributions.  They are now seasonal and working 300 hours per year.

Plan doc says forfeit after 5 Breaks in Service.  Would you forfeit while still employed?

 

Please give us the EXACT language from the document; it more than likely is more like what Tom posts and now what it says above.  The  precise language is ALWAYS important.

[Loves401(k)]

Thank you to all of you.  I went through the plan doc again, and found the phrase " A participant who Terminates Service".

So, I have my answer.

 

 

[Tom Poje]

along with a very good question.

just because of the way the Code reads, I think under section 411 termination is required because all references to restoring a benefit refer to when a participant is rehired, and such a person never separated, only had a break in service. otherwise the person would forfeit and then have no way of ever restoring his benefit unless he actually quit.

[ESOP Guy]

Although to be clear I have had documents that simply say forfeit after 5 BIS.  At which time you do that even if they never terminated.  it is odd looking but what the document says. 

[ESOP Guy]

On 2/21/2018 at 8:46 AM, Tom Poje said:

along with a very good question.

just because of the way the Code reads, I think under section 411 termination is required because all references to restoring a benefit refer to when a participant is rehired, and such a person never separated, only had a break in service. otherwise the person would forfeit and then have no way of ever restoring his benefit unless he actually quit.

I don't think this is a problem if the plan says forfeit after 5 BIS and doesn't require a termination.  Then there can't be a restoration if there has been 5 BIS.

I have clients whose document says forfeit after 5 BIS.  It doesn't say and terminated. 

[CJ Allen]

Also, important to note, is the administrative account issues that may arise with these active employment 'breaks-in-service'.  Namely, based on plan document provisions, additional vesting of original employer account balance may not be allowed after a 'break-in-service' for vesting purposes.  Also, for 0% vested accounts, past service may be ignored on future employer contributions.  So, administratively, if the plan document is restrictive in vesting credits due to 'break-in-service' rules, you may have to "freeze" the old employer account at its vested % and you may have to "restart" years of service for new employer account contributions.  IRC 411(a)(6)(C&D)