Collectively Bargained Money Purchase Plan - Deemed Retirement

A money purchase Taft-Hartley plan provides that an employee is deemed to be retired, for administration purposes, as of the first day of the calendar quarter following 60 days for which contributions from a contributing employer ceased to be required on his/her behalf. At that point, if the employee is unmarried, benefits are payable in the form of a straight life annuity, unless the participant elects a lump sum, or installments payable over 3 years, 5 years or 10 years. If a participant is married, the joint and survivor annuity is payable unless the participant elects, with spousal consent, to receive his/her account in the form of a qualified optional survivor annuity, a straight life annuity, a lump sum, or installments payable over 3 years, 5 years or 10 years. Since the IRS considers a money purchase plan to be a pension plan, there are restrictions on in-service distributions prior to the participant's attainment of age 62. I can appreciate the fact that it may be difficult for a multiemployer fund to determine whether a participant has in fact terminated his/her employment. However, I am concerned that the IRS could question the plan's qualified status if the participant is deemed terminated or retired and it is determined that the participant was not in fact terminated. Does anyone have any thoughts on this?  Thank you.  

41 minutes ago, rocknrolls2 said:

… contributions from a contributing employer ceased to be required on his/her behalf.

What does this mean under the plan terms?

Contributions would generally be required at the contribution rate per hour of service. The employer could cease to be required to make contributions to the plan in any of the following scenarios: (1) the employee is still working as a participating non-bargained employee which the recordkeeping system is not picking up,  (2) the employee has stopped working, or (3) the employee has been into a job category that the employer is not required to make contributions to the plan on the employee's behalf. The employee should not be permitted to get a distribution from the plan in scenario (1) or (3), but may get a distribution in scenario (2). In scenario (1), there is possibly an operational compliance issue which would have to be corrected.

Because there is no statutory, reg, or subregulatory guidance on what is a separation from service where, as in most situations, rehire is always at least theoretically possible, you come across these sort of provisions (which are really administrative provisions written into the plan with a view to getting them baked into the DL). If the plan provision was included in the document that has a DL, you're probably good. In theory, the plan should have determined that in those circumstances it was reasonable to assume that the individual was not on leave or had a promise of rehire. E.g., in a seasonal industry this would presumably have some potential false positives.