Termination of Employment
A recent court case clarified what constitutes a termination of employment for purposes of plan distributions.
Welcome to the Retirement Learning Center’s (RLC’s) Case of the Week. Our ERISA consultants regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, Social Security and Medicare. This is where we highlight the most relevant topics affecting your business. A recent call with a financial advisor in New York is representative of a commonly asked question on termination of employment.
"What constitutes a termination of employment?"
Highlights of the discussion
A recent court case [Mauer v. Pension committee of the National Basketball Association Referees’ provided insights into a seemingly simple question: What constitutes a termination of employment?
The facts are as follows. A professional basketball referee refused to comply with the NBA’s COVID vaccination policy and was terminated. The NBA referee’s plan provides that termination of employment is a triggering event for distributions.
The referee requested a distribution from the plan and filed a suit against the NBA requesting he be reinstated to his former position. The plan committee denied the distribution request because of uncertainty over the lawsuit and the referee’s possible reinstatement. The court ruled the phrase “termination of employment” was unambiguous and ordered the committee to make the distribution to the referee.
Therefore, when the employment relationship is severed, affected participants are eligible for distributions under the termination of employment provision regardless of litigation or other circumstances where they could return to employment.
For a more information on what constitutes a bona fide severance of employment, please see our prior Case of the Week Sham Employment Terminations and Plan Distributions.
Conclusion
When severance of employment is a distribution trigger and an employment relationship is severed, courts have ruled the affected plan participant is eligible for distributions regardless of litigation or other circumstances where they could return to employment.