As the impact of the pandemic subsides, business and organizations have begun a phased reopening in compliance with state and local laws. It is our hope that this is a sign of better times ahead.

As employers prepare to return to normal operations, they will likely face a number of practical and legal challenges they have not previously encountered. One such challenge is returning furloughed employees to the workplace and how it impacts their 401(k) and 403(b) retirement plans. There are some aspects to consider so get’s dig right in.

Employee eligibility requirements
Recalled employees who were previously eligible for the plan will likely be eligible again immediately upon rejoining, especially if they returned within 12 months. That means they’re eligible right away to make salary deferrals and receive employer contributions, if any. We would suggest carefully reviewing your plan document for this.

Employee deferral elections
Should an employee’s prior contribution election, be it pre-tax or Roth after-tax, apply on rehire or should he make a new election? This will be determined by your existing policies and procedures. But to be on the safe side, you may want to have the rehired employees complete a new set of deferral election form.

Employee service crediting
Workplace retirement plans that utilize “elapsed time method” for purposes of eligibility or vesting may want to carefully review their plan document to properly service credit while the employees were gone. If your plan contains break in service rules, you will need to consider if/how each rehired employee is affected.

Know the rules
Your plan document or adoption agreement will dictate how to treat rehired employees, therefore it’s critical that you review the verbiage contained in the document.

With that said, we realize time is a valuable commodity, so we wanted to make this piece short and sweet. But if you have any questions or need clarification, do not hesitate to contact our office.