Here is your latest FYI: Employee Benefits
Update from Cindy Van Bogaert, Partner and Chair of the Employee
Benefits Practice Group at Boardman Law Firm LLP.
This FYI highlights problems with 401(k) distributions to employees who terminate
from employment and then are rehired by the same employer. This is a troublesome
issue for 401(k) plans because the rehire may indicate to the IRS that the termination
from employment was not "bona fide" which means that the distribution
might not have been allowed under the 401(k) rules. Because the situation is
judged on a somewhat vague "facts and circumstances" standard, it can
be difficult to assess whether a distribution to a rehired employee is in order
or not.
Employers should consider the following steps:
- If the employer
knows about a rehire prior to making a distribution, review with
counsel to determine whether a distribution is appropriate.
- If
the rehire is to occur after a distribution has been made, review
the situation with counsel (preferably before the rehire date)
to see what additional steps might be taken.
In my BenefitsLink 401(k) Q&A column, I recently addressed
a question which provides more information about how a rehire affects
the decision to make a 401(k) distribution.
Here is the link to the Q&A:
http://benefitslink.com/modperl/qa.cgi?db=qa_401k&id=75
Please contact me if you would like more information.
This FYI is not legal advice. Individuals should seek advice based
on their particular circumstances from their own counsel. Nothing
in this FYI is intended to be used, and no information can be used,
for the purpose of avoiding penalties under the Internal Revenue
Code, or promoting, marketing, or recommending to another party
any transaction or matter addressed in this FYI.
If you have any questions or need assistance, please contact Cindy
Van Bogaert at (608) 281-7543 or cvanbog@boardmanlawfirm.com.
Would you like to have FYI: Employee Benefits Update sent
directly to your e-mail inbox? If so, please send your request,
with e-mail address, to Cindy Van Bogaert at cvanbog@boardmanlawfirm.com. |
