Beware Benefit Issues With Boomerang Employees

February 27th, 2008

With the difficulties employers are having with attraction of qualified workers, more and more employers are solving their problems by re-hiring former employees (called “boomerang employees”).  These employees encompass the ex-employee who had previously retired and is now looking to return to the work force, as well as the ex-employee who left employment and is now regretting that decision.  Employers who re-hire these boomerang employees can experience numerous advantages, including a decreased learning curve and a greater assurance of corporate-culture fit. 

However, this trend is not without its pitfalls, and employers would do well to consider how these employees will fall within the company’s employee benefits plans.  Several laws (such as ERISA, the Internal Revenue Code, the Pension Protection Act, and 409A) can impact employer-sponsored employee benefit plans, and how employers must treat the benefit plans applicable to the re-hired employees.  For instance, employers should take into account:

  • Section 125 Cafeteria plans have regulations applicable to separation from service and a subsequent return to service
  • ERISA has provisions governing vesting and forfeiture that have specific guidelines on how to treat “breaks-in-service” for benefit calculation and re-entry dates
  • The Pension Protection Act made changes to vesting schedules and created the ability for employers to begin to pay pension plan benefits at the earlier of age 62 or the plan’s normal retirement age
  • Section 409A applies to non-qualified deferred compensation plans and contains regulations about payment of deferred compensation due to a separation from service and re-hiring the employee

There is a large amount of case law which deals with re-hired employees and their rights to access various employee benefits plans.  The over-riding theme behind the case law is to ensure that all similarly situated employees are being treated in the same manner under the plan.

Boomerang employees can be of great benefit to employers in many ways.  The potential issues surrounding their right to access benefits under employer-sponsored plans shouldn’t be used as a reason not to retain these workers.  Employers simply need to ensure that all potential benefits issues are addressed before the situation arises.  Having all the benefits plans reviewed by benefits counsel in light of possible boomerang employees can provide a list of dos and don’ts to guide the employer when the situation arises.

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