PLANSPONSOR - January - February 2024 - 11

earlier last year, however, found that nearly
90% of plan sponsor respondents intended
to divest all of their DB pension liabilities.
" While we see U.S. private sector
pensions maturing, they are not going
away, " the Aon report states. " Most are
moving toward lower-risk positions to
reduce their impact on the plan sponsor. "
Overall, assets in private sector
pension plans have decreased over the
past 10 years, dropping 14.8% to about
$3.7 trillion in 2022 from about $4.3
trillion in 2013, says data from the
Congressional Research Service.
For IBM, thawing the cash balance
plan while maintaining a defined contri...
it will end
5% matching
contributions
and 1% automatic
contributions
to
employees'
401(k) accounts.
bution plan is a strong endorsement of the
idea " that sponsors will want to operate
DB and DC plans together, " Gross says.
Although IBM is " not the first [plan]
sponsor to reopen a pension plan, ...
certainly among the large, Fortune 500,
broadly known mega plans, it's the first
we're aware of. So there's a signaling effect,
and we expect [IBM] will not be the last.
" Many large plans are approaching
full funding " after a prolonged period of
being underfunded, and some have gone
into surplus status, according to Gross.
IBM's decision to thaw the DB plan
" is a tangible example of a thoughtful
sponsor making use of a pension surplus
in an extremely efficient way, " he says.
-Noah Zuss
ASK THE EXPERTS
When Are Rehired Personnel
Eligible for Contributions?
QUESTION: We sponsor an ERISA [Employee Retirement Income Security
Act] 403(b) plan. We rehired an employee who was participating-both
receiving our contributions and making elective deferrals-in the plan at
the time of her termination. Upon rehire, must she start over again and wait
a year before receiving our contributions again (our plan has a one-year
waiting period for receipt of employer contributions), or can she begin to
receive them immediately upon rehire?
ANSWER: As with many answers regarding employee benefits, it depends on what
your plan document says. In the vast majority of cases, a rehired employee who was
eligible for employer contributions at the time of employment termination will be
immediately eligible for such contributions upon rehire and will not have to satisfy
a new waiting period. However, the plan may require a rehired employee to meet the
eligibility requirements if the plan document includes either of these optional provisions,
from Section 410 of the Code of Federal Regulations: 1) the rule of parity, or 2)
the one-year hold-out rule. If the 403(b) plan document includes either of these provisions,
there may not necessarily be an immediate resumption of eligibility for employer
contributions for rehired participants.
The rule of parity applies only to non-vested participants. If the rehired employee
was vested in either employee or employer contributions before they initially terminated,
the rule does not apply. Note that, since elective deferrals are 100% vested, this
rule would not apply to anyone who electively deferred to the plan prior to their original
termination, regardless of whether employer contributions were vested or not.
If the rehired employee was not vested, the rule allows the person to be treated as
a new employee if the number of consecutive breaks in service is at least equal to the
greater of: a) five years, or b) the years of service prior to the break in service. As a practical
matter, b) rarely applies since participants with more than five years of service
are at least partially vested. Thus, if a plan sponsor maintains this provision in its plan
document, non-vested participants who have at least five consecutive breaks in service
would be treated as new hires and would need to satisfy a new one-year waiting period
before being eligible to receive employer contributions.
This leaves the remaining optional provision, the one-year holdout rule. This rule
allows plan sponsors to require that all participants who incur a break in service be
required to complete one year of service after rehire before receiving employer contributions.
However, once the year of service is completed, contributions must be made
retroactively to the participant's rehire date. Due to the complexities associated with
such retroactive contributions, as well as other administrative issues associated with
this provision, it is rarely seen in retirement plans.
Kimberly Boberg, Taylor Costanzo, Kelly Geloneck and David Levine, with Groom
Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer
readers' questions. This does not constitute legal advice and cannot be used or
substituted for legal or tax advice. Forward your questions for the experts to Amy
.Resnick@issmediasolutions.com, with " Ask the Experts " as the subject.
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