temporarily laid off

[TPApril]

Is there any reason a participant who has been 'temporarily laid off" is eligible for a distribution?

I don't know the company's definition of 'temporarily' but he was apparently told he can take a distribution, but I feel like employee is not truly terminated.

[Lou S.]

Is there a separation of service? 

If they are on a leave of absence I would say no. if they are are on a lay off, I would probably say yes. Are they eligible for unemployment benefits while laid off? I don't know if that is definitive but I would lean toward that being a yes there is a separation and unless the plan has some other terms that would make the participant ineligible for distribution then they would be able to take a distribution.

Have the Plan Sponsor make a determination whether the employee is terminated. If they treat as terminated and rehired, I wouldn't have a problem with the participant being eligible.

[Peter Gulia]

Here’s the Treasury’s interpretation:

“An employee has a severance from employment when the employee ceases to be an employee of the employer maintaining the plan.”

26 C.F.R. § 1.401(k)-1(d)(2) https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-1#p-1.401(k)-1(d)(2).

As always, Read The Fabulous Document to discern whether the plan’s provision is narrower.

Also, if the participant is covered by the employer’s health plan, the retirement plan’s administrator might consider logical consistency with the health plan. Does the health plan treat the worker as still employed and so regularly covered? Or did the health plan’s administrator send a COBRA continuation notice because the worker no longer is employed?

This is not advice to anyone.

[ESOP Guy]

There has to be a bona fide separation however.   If there is an agreement the person will be brought back you can't pay them a benefit. 

The classic example is a person who is terminated with the understanding once they get their benefit paid they will be rehired. 

This isn't exactly the same but if there is some kind of commitment to bring this person back after a given period of time I have my doubts. 

If this is a layoff and it is simply if things turn around we will take you back there would be a bona fide separation. 

I think you need more data regarding this. 

[CuseFan]

Agree with ESOP Guy. Also becomes problematic if distribution requested and ultimately paid after the employee is rehired/recalled.

 

[Artie M]

Agree with above....A distribution can only be taken if their employment has been terminated due to a permanent layoff, not a temporary layoff with a reasonable expectation of being called back to employment.