Elimination of the Same Desk Rule

The new tax law eliminates the troublesome “same desk” rule for 401(k), 403(b) and 457 plans. Under the “same desk” rule, employees who continued on the same job– sat at the “same desk” – for a different employer following a liquidation, merger, or consolidation, generally could not receive distributions from the plan of their old employer. The rule required a “separation from service” before distributions could be made. So long as an employee sat at the “same desk,” even if it were for a new employer, a “separation from service” did not occur. This often forced employers, following a merger or acquisition, to retain the benefits of terminated employees in their plans. The rule not only hindered portability of retirement plans, but confused employees and played administrative havoc for employers engaged in business acquisitions.

Under the new law, the phrase “separation from service” is replaced with the term “severance from employment.” Distributions can now occur upon “severance from employment” rather than “separation of service” – so that an employee who works at the same job for a different employer after a merger or acquisition can now receive a distribution from the former employer’s plan.

These provisions are effective for distributions after December 31, 2001 – regardless of when the severance of employment occurred.

If you have any questions, please contact FredReish@Reish.com.

© 2001 Reish Luftman Reicher & Cohen. All rights reserved. The ERISA Report for Plan Sponsors is published as a general informational source. Articles are general in nature and are not intended to constitute legal advice in any particular matter. Transmission of this report does not create an attorney-client relationship. Reish Luftman Reicher & Cohen does not warrant and is not responsible for errors or omissions in the content of this report.

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