Is employee terminated for rollover if still part time?

Hi All,

Employee will "retire" from employer soon but will still do part time work of less than 20hrs/week.  Is she eligible to make a rollover to an IRA?  Her 401k is expensive.

Thank you 

Charlie

By definition if the person is still working regularly they aren't retired or terminated.  This person is still working.   So the answer is "no".  

How old is she?

She's 56. 

Does IRC or IRS provide definition of "retired" or "terminated" for this situation?   I can't find anything but likely looking in wrong place.  

Many thanks for any help!

On 4/17/2020 at 9:26 AM, CKR said:

She's 56. 

Does IRC or IRS provide definition of "retired" or "terminated" for this situation?   I can't find anything but likely looking in wrong place.  

Many thanks for any help!

Look, you put "retired" in scare quotes in your original posting.  Why?  BECAUSE SHE IS NOT RETIRED, and you knew that.  All that happened is she reduced the number of hours she works; she is still an employee.  She is neither retired nor terminated.

Your question is really whether at her age she can get an inservice distribution which can then be rolled over; that depends on the plan provisions, but most likely (statistically) that plan doesn't provide for a distribution while still employed at age 56.

1 hour ago, Larry Starr said:

Look, you put "retired" in scare quotes in your original posting.  Why?  BECAUSE SHE IS NOT RETIRED, and you knew that.  All that happened is she reduced the number of hours she works; she is still an employee.  She is neither retired nor terminated.

Your question is really whether at her age she can get an inservice distribution which can then be rolled over; that depends on the plan provisions, but most likely (statistically) that plan doesn't provide for a distribution while still employed at age 56.

Thank you.  I know little about this area.  Would it matter if she's at same employer but now an independent contractor (1099)?

If she's truly an independent contractor, she is not an employee. But the determination of whether or not she's an IC has nothing to do with how she's paid. The sponsor can't simply start paying her via 1099 rather than W-2 and use that to conclude that she's now an IC and therefore no longer employed.

On 4/17/2020 at 9:26 AM, CKR said:

She's 56. 

Does IRC or IRS provide definition of "retired" or "terminated" for this situation?   I can't find anything but likely looking in wrong place.  

Many thanks for any help!

Yes, a person is retired if they are terminated and that termination happened on or after the person's Normal Retirement Age as defined in the plan document.  The term 'terminated" isn't defined in the law but a person who is still employed part-time clearly isn't terminated per the dictionary definition.   A person simply can't be terminated and working some hours.  

30 minutes ago, CKR said:

Thank you.  I know little about this area.  Would it matter if she's at same employer but now an independent contractor (1099)?

As pointed out the determination if a person is an independent contractor is determined by the law not decision.   So if a person simply keeps going the same job but less hours but is now sent a 1099 is most likely a violation of labor law not pension law.  

Your two choices are:

1) This person go through a bona fide termination.

2) Change the plan to allow a person who is over say 65 to be allowed to take an in-service distribution.

I have a number of plans that allow #2 for what looks like your real issue is.  You want to keep this older person around working some but they can't afford to work part-time.  They need to be able to access their retirement funds to afford to work part- time.   I would look at changing the plan to allow people who are retirement age take an in-service distribution.  

It is a pretty simple plan amendment. 

Thank you all.  Very helpful!

56 minutes ago, ESOP Guy said:

2) Change the plan to allow a person who is over say 65 to be allowed to take an in-service distribution.

 

I think she is 56, not 65.

1 hour ago, Mike Preston said:

I think she is 56, not 65.

I missed she gave the age in a later reply.   That makes the in-service amendment harder. 

Quote

Is she eligible to make a rollover to an IRA?

Let's go back to the original question.  The above advice is correct, but might be (from your perspective) somewhat disjointed.  Your question is answered with another question:  Does the employee have a distributable event under the terms of the plan?  (That term typically refers to death, disability, retirement, other separation of employment.  Those terms might be defined in the document itself.  Read it.  If you don't have access to the plan document, get a copy of the Summary Plan Description.)