Rules for Bringing Back Laid Off or Furloughed Employees

“We are a 403(b) higher education plan sponsor who laid off and furloughed employees due to the COVID-19 pandemic. We have now hired back/recalled from many of those employees. Could the Experts opine as to some of the major 403(b) retirement plan issues I should be addressing for rehires? Thanks!”

Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

We are happy to. Generally, you should be considering the same issues as with any other rehire, with some of the big considerations being:

• Service crediting: If your plan uses the elapsed time method, the time during which the employee was furloughed or laid off may count as service credit under the plan. If your plan contains break in service rules, you will need to consider if/how each rehired employee is affected.
• Employer contributions: If an employee met the eligibility requirements to receive employer contributions prior to being furloughed or laid off, the employee should likely again be eligible for such contributions immediately upon rehire. If the employee was not yet eligible, service prior to being furloughed or laid off will likely count towards the eligibility requirements (but you need to consider your plan’s break in service rules).
• Employee contributions: You should review your plan document (and any procedures) to determine whether an employee’s previous contribution election will apply on rehire or if a new election must be made (a similar review should be done for beneficiary elections). Also, if your plan has automatic enrollment, you need to ensure it is applied to rehires in accordance with plan terms.
• Plan distributions: If an employee took a distribution during the period they were furloughed or laid off, the IRS may question whether the separation was intended to be a “bona fide termination.” You should consult with outside counsel on the specific considerations for protecting the plan in the event of distributions to these employees.

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.