NRA and Break in Service

A plan's normal retirement age/date is the later of age 65 or the fifth anniversary of the commencement of participation. 

The Plan also provides for the one-year hold-out rule for both eligibility and vesting. 

Facts: Employee is over 70 y/o but has not yet reached the fifth anniversary of participation. Assume the employee is eligible to participate and has not yet vested in the account. The participant incurs a break in service and is not expected to ever work 1,000 HOS again. The participant, therefore, is suspended (likely indefinitely) from participating and will not again earn a YOS for vesting purposes. 

Question: Even though the participant is suspended from participating and earning vesting credit due to the hold-out rule, is the clock still sticking on the fifth anniversary to each the normal retirement date such that the participant will become vested five years from the first day of the first plan year in which the participant entered the plan (which has not yet occurred)?

I understand the potential issue with 401(k) plans and the hold-out rule, but the participant will almost certainly never earn 1,000 HOS again, so the retro entry date will not be an issue. 

I think the person goes from active non-vested to terminated non-vested (assuming termination and re-hire) to non-eligible/non-participant (unless/until 1000 hours). So I don't think 5th anniversary of participation happens because not participating. You may also have a 0% vested deemed cash out, check plan language.

However, I think this is all assumes an actual termination of employment and rehire. If the BIS was solely due to a reduction in hours, check plan language carefully as that situation may be treated differently.

Thanks. The employer does not anticipate a termination of employment - only a reduction in hours lasting indefinitely (essentially becoming a part-time employee). 

Thanks for the reply. I agree a reduction in hours is not a termination, but a suspension can occur after a one-year break in service pursuant to the one-year hold-out rule for eligibility and vesting purposes. 

The rule of parity (the one in Code 410 for eligibility purposes) can act to delay the five-year anniversary for NRA. Treas. Reg. § 1.411(a)-7(b).

As of now, I'm thinking only the rule of parity can act to delay the five year NRA rule, and no other break in service rule will. 

Doesn't the rule of parity require a minimum of 5 years?  In which case, by the time you know you could exclude the years, the 5th anniversary has already kicked in anyway? 

I did enjoy thinking about a "Narnia closet" for those excludable years, though.

The answer is yes - the clock is still ticking. Look at the plan document - it probably uses the IRS LRM language - which is at 14A of the DC LRMs. I deleted the transition language - and what you have is what's below. It's based on the anniversary of participation and isn't based on a YOS, suspension rules, etc.  

LRMs ( ) the later of: (i) age _____ (not less than 55, nor in excess 65), or (ii) the _____ (not to exceed 5th) anniversary of the participation commencement date. The participation commencement date is the first day of the first plan year in which the participant commenced participation in the plan