Rehire vesting after 14 years

[Snicky]

I have a rehired employee who termed back in 2004 (1997-2004),  and was just rehired - 8 /2018.

I do not want to credit the prior years of service and want to have them start their vesting over from the rehire date.   Do they keep their service ? 

Is there anything I can do to amend the plan doc to stop this recurring with other rehires?  Currently on a volume submitter.

[Tom Poje]

there are many things we might not want to do but

assuming the person was a participant in the plan years ago then:

the ERISA Outline Book sums it up this way:

Chapter 2 Section V C2

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.

 

2.e.Statutory requirement may be more than 5 breaks in service under certain circumstances. Technically, the minimum 5-year break requirement described in 2.a. is the greater of five breaks in service or the number of years of service credited at the time the break in service period begins. However, a participant with more than five years of service generally will have at least some vesting under the plan's vesting schedule and the rule of parity would not apply anyway. The vesting rules are discussed in Chapter 4. In most cases, it is correct (and simpler) to think of the rule of parity as applying after a 5-year break period.

 

2.f.Rule applies only to participants. Since IRC §410(a)(5)(D) and ERISA §202(b)(4) refer to a "participant" having the requisite number of consecutive breaks in service, it is presumed that this rule cannot be applied to an employee who has not become a participant in the plan at the time the break in service period begins. Apparently then, the rule of parity does not apply to an employee whose break in service period began prior to the effective date of a plan, even if the employee would have otherwise been a participant in the plan if the plan had been in effect and even if the employee has incurred at least five consecutive breaks in service.

[Larry Starr]

6 hours ago, Snicky said:

I have a rehired employee who termed back in 2004 (1997-2004),  and was just rehired - 8 /2018.

I do not want to credit the prior years of service and want to have them start their vesting over from the rehire date.   Do they keep their service ? 

Is there anything I can do to amend the plan doc to stop this recurring with other rehires?  Currently on a volume submitter.

Tom gave you the tech answers which are correct. 

The easy answer is "the law doesn't allow you to do what you suggest". PERIOD.

[Tom Poje]

And then there will always be people like me....

http://www.addletters.com/bart-simpson-generator.htm#.W6DjhTbruJA

[401_noob]

Couldn't he exclude those prior years of service if the Plan Sponsor did not have a Plan or a predecessor Plan at the time the rehired employee was performing the service the first time and the current Plan, as written on his VS document, excludes years of service before a Plan was maintained? 

[Luke Bailey]

This is governed by IRC sec. 410(a)(5) for eligibility and 411(a)(5) for vesting. Depends on whether DC plan and whether individual was 0% vested when left. Assuming the likely (i.e., DC plan and the individual was more than 0% vested when left), then you cannot ignore prior service for either eligibility or vesting, but of course if had 5 consecutive one-year breaks (which seems likely), new service will not apply to and require reinstatement of any prior forfeited amount.

This is statutory. You cannot fix by plan provision, assuming you want plan to be qualified.

[Larry Starr]

On 9/18/2018 at 12:40 PM, Tom Poje said:

And then there will always be people like me....

http://www.addletters.com/bart-simpson-generator.htm#.W6DjhTbruJA

Muy excellento! A good chuckle here.

[ACK]

To 401_noob's point, a plan can be written to exclude service prior to the effective date of the plan.  However, I have never seen a plan add this provision after the plan was already implemented, only when it is first drafted.  Since this individual was rehired in August 2018, and the plan did not already contain this rule (I assume), I don't think that amending the plan now to add it will work because the individual in question was credited with his prior service under the terms of the plan at the time he was hired, so I would view that as a protected benefit that can't be reduced by any sort of amendment that occurs after his hire date.