“We recently rehired an employee who, when he left us about two years ago, chose to leave his account balance in our 403(b) plan, as our plan allows former employees to leave their assets in the plan if the balance exceeds $5,000, which it did in this case. Now that he is back with us, he wants to withdraw his prior account balance, since he claims that the balance can be withdrawn due to his prior termination. But, since he is here now, and our plan does not allow for in-service distributions except for attainment of age 59.5 or financial hardship (neither of which apply in this case), should we deny his distribution claim?”
Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:
It is likely reasonable to deny this claim for distribution based upon the plan terms you describe. Under such interpretation, if the participant wanted to preserve the right to take a future distribution from those 403(b) assets in the event of a rehire by your firm, he could have rolled such assets over to another retirement plan or individual retirement account during the period of time that he was not employed by your firm.
That said, the participant is correct that he incurred a termination of employment, which would have allowed him to take a distribution during the time period when he was not employed by your firm. Whether that time period expired when he was rehired would need to be reviewed in the context of the full plan document. Similar to allowing the distribution of rollover contributions prior to termination, the plan could allow for distributions in this scenario. See Rev. Rul. 2004-12. Therefore, retirement plan counsel well-versed in your plan terms and prior practices in similar situations should be consulted.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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