The plan document sets out eligibility provisions for the various types of contributions allowed by the plan. An employee will qualify for the plan, work for a period of time, then retire or terminate employment with a subsequent distribution of benefits. But how does the plan deal with individuals who return to employment? The answer depends on several factors, including how long they were employed and how long they have been absent.
- Participants who left employment with any vested balance re-enter the plan immediately upon rehire:
Robert left employment on October 15, 2015 with 60% vesting. He was rehired on January 15, 2017 and enters the plan on the same day. All his prior service counts for vesting purposes.
- The treatment of participants with no vested balance at termination of employment depends on how long they have been gone. If the former employee incurs at least five “breaks in service” then he or she is treated as a new employee. A break in service is defined in the plan document, but is typically a plan year with less than 500 hours of service. If a non-vested former participant is rehired within the five-year period, he or she would enter the plan upon re-employment:
Katy worked for a year before quitting in early 2012 to go back to school and had no vested balance at termination. She is rehired on January 1, 2017 and incurred five breaks in service (2012-2017). She is considered a new employee and must satisfy the plan’s eligibility requirements a second time before re-entering the plan. If she had been hired in early 2016, she would have immediately re-entered the plan.
- An employee who satisfies the plan’s eligibility requirements before termination would enter the plan on his or her rehire date, or the employee’s original plan entry date, if later:
Steve was hired on May 4, 2015 and left employment the next February, working over 1000 hours. He is rehired in September of 2016. Because he previously satisfied the plan’s eligibility requirements, he immediately enters the plan upon rehire.
- Employees who separate before satisfying the plan’s service requirements must have their prior service counted upon re-employment in determining subsequent eligibility.
It is important to indicate any rehired employees on the census information you send to us. It is sometimes difficult to track former employees, especially if they have name changes since their last employment or if we are not provided social security numbers. Sponsors of 401(k) and 403(b) plans should be especially careful with rehires as their immediate re-entry into the plan may require new election forms and notices. Please contact us with any questions on rehired employees.
For questions or more information, please contact Richard Green at rgreen@windes.com or 844.4WINDES.
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