Suspending Disbursements Upon Resumption of Employment; Perhaps With Endorsing Entity

§ 2530.203-3 Suspension of pension benefits upon employment.

URL: https://www.ecfr.gov/current/title-29/section-2530.203-3 

Citation: 29 CFR 2530.203-3

This section sets forth the circumstances and conditions under which such benefit payments may be suspended. A plan may provide for the suspension of pension benefits which commence prior to the attainment of normal retirement age, or for the suspension of that portion of pension benefits which exceeds the normal retirement benefit, or both, for any reemployment and without regard to the provisions of section 203(a)(3)(B) and this regulation to the extent (but only to the extent) that suspension of such benefits does not affect a retiree's entitlement to normal retirement benefits payable after attainment of normal retirement age, or the actuarial equivalent thereof.

Retirement plans seem drafted to encourage distributions occur only under controlled circumstances. Therefore, individuals who resume employment would seem helpful, as these persons have established an alternate source of income. Therefore, allowing distributions to continue, if against the prerogative of these individuals, seems counterintuitive. To present an analogy, individuals who decide to reduce the sodium/salt intake of their diet, receiving as gifts saltshakers, which do contain salt. The individuals do not request and would prefer not to receive these saltshakers, yet the saltshakers still arrive containing salt.    

Is there a question?

Please indicate if individuals who resume work may request to have the disbursements cease, or if the administrators may overrule this request.

The plan document will contain provisions that state what happens when a person resumes working after retirement, or works beyond their Normal Retirement Date (NRD).  The plan sponsor, though the plan document, define if the benefit is suspended, or if the participant can receive an in-service distribution.   It is not discretionary. 

Just from my personal experience, most collectively bargained or Taft- Hartley plans suspend benefits if the participant returns to work or continues to work beyond NRD.  This is more about preserving jobs for younger members.   Unions generally want people to retire, and stay retired so that younger people can fill the jobs and get experience.  Some plans permit people to return to work in special situations or after certain ages.  For example if they retire early, they cannot return to work without a suspension but once they reach Normal Retirement Age, maybe they can return and work as long as they stay below a certain number of hours.  Some plans also have "critical shortage" rules where they allow members to return to work for a specific time period, say for a large construction project. 

In the corporate world, "in-service" distribution provisions are more common because they tend to want to keep more experienced people in place.  That said, allowing people to receive retirement benefits and continue to work can make it difficult to get a person who should retire, to leave.  This can create bad HR outcomes.  

@Effen is correct about referring to plan provisions.  Never discretionary.

You can also search this forum for some prior discussion threads.  Use a search word like "suspend" or "suspension" or "rehire".  In the opinion of some (especially me), the proper way to think about the question should also include the plan status of "frozen" or "not frozen". 

The plan provisions (suspend or not) should not be contrary to HR policy (loosely described as "do we want to rehire this person"); if the current provision(s) do not align with the preferred HR policy, then you should hire @Effen to give you some experienced actuarial advice.

And some multiemployer plans suspend a pension if the retiree works for a nonunion employer in work of a kind the same as similar to the work covered by the plan.