Break in Service

If an employee terminates and comes back 5 months later they really haven't "terminated" in the eyes of the plan, they simply have a lapse in service.  It's not until they have been gone for 1  complete year when they can be considered "terminated" and in essence would have to start all over if they were re-hired.    Correct?

And the break in service rule is an IRS rule? Not an individual plan rule?

For eligibility purposes, you generally can not disregard any prior service.

There is a special rule in section 410(a) that says a plan may disregard eligibility service that occurred before 5 consecutive 1-year breaks in service if the employee terminated with no vested account balance. If this rule applies, then the employee would be treated as a new hire.

This so-called "rule of parity" is an option that may be used for determining eligibility service, but plans are not required to use it.

edit: ESOP Guy is 100% correct below where he points out that this is a plan document provision, and whether/how to apply it is described in the document. It's not something that can be applied at the employer's discretion.

Honestly, your question is hard to understand. 

Are you talking about someone who is a participant already? 

If so, the document defines the rules of when a person who is rehired re-enters the plan.

I have plenty of plans that clearly say that a person who was a Participant in the past re-enters upon rehire regardless of how long they have been gone for example.

Are you talking about an employee who never entered the plan? 

If so, a well written document tells you how to handle them when they are rehired.  Depending on the exact facts and how the plan document is written they will get credit for their prior service and other times they will not.  The document will reflect the law.  The guy who trained me back in the early '90s was famous at the firm for saying:  99% of all your questions can be answered by reading the plan document.  Even when it is a question of the law the document will simply reflect the law.  

This really is a read the freaking document question more than anything else in my opinion.

Got it.