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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
Employees who "retire" on one day to qualify for benefits under a plan, with the explicit understanding with their employer that they are not separating from service with the employer, are not legitimately retired, according to a private ruling by the IRS.
The plan's actuary certified the plan to be critical status effective October 1, 2009. Accordingly, under Code Sec. 432, the employer was required to create a rehabilitation plan. Code Sec. 432 requires that the rehabilitation plan include a default schedule, which must assume that there are no increases in contributions under the plan other than those necessary to emerge from critical status after future benefit accruals and other benefits have been reduced by as much as the law allows. The employer proposed a default schedule that would eliminate the ability of participants with 20 or more years of service to retire with an unreduced pension benefit. The employer proposed to give participants notice 60 days before the date that the subsidized service pension benefit is eliminated and that as part of this default schedule, eligible participants who retire during this 60-day window would then be able to return to employment and have their benefits suspended while working.
The IRS concluded that employees who "retire" on one day to qualify for a benefit under the plan, but who have an explicit understanding with their employer that they are not separating from service with the employer, are not legitimately retired. Accordingly, the "retirements" would not constitute a legitimate basis to allow participants to qualify for early retirement benefits (which are then immediately suspended), the IRS determined. The retirements under this separation from service would violate Code Sec. 401(a) and result in the disqualification of the plan. However, under Code Sec. 401(a)(36), employees who had attained age 62 upon benefit commencement may qualify for and receive early retirement under the plan while they continued employment, the IRS said.v
Source: IRS Letter Ruling 201147038.
For more information, visit http://www.wolterskluwerlb.com/rbcs.
For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.
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