34 Tex. Admin. Code § 123.2 - Bona Fide Termination of Employment
(a) The Act provides that retirement benefits
commence upon retirement, and §851.001(11) of the Act provides that
retirement requires a "withdrawal from service". The Internal Revenue Code and
regulations thereunder require that the terms of the plan be followed and
define termination of employment for the similar rule that under a pension
plan, such as TMRS, benefits cannot commence prior to the earlier of
termination of employment or normal retirement age (if the plan allows
in-service distributions prior to normal retirement age, which the Act does
not). In order to satisfy applicable requirements of the Act and the Internal
Revenue Code and guidance thereunder, for purposes of allowing a distribution
of benefits to a member, a member must have a bona fide termination of
employment with all applicable participating municipalities. A distribution of
benefits to a member before there has been such a bona fide termination of
employment would be an in-service distribution and an operational error which
could lead to a plan disqualification under the Internal Revenue Code and could
result in the assessment of taxes, back taxes, interest and penalties against
the participating municipality or municipalities and its participants unless
corrected.
(b) Whether a
termination of employment is a bona fide termination is dependent on the facts
and circumstances surrounding the termination.
(c) With respect to employees of a
participating municipality, a termination is not a bona fide termination of
employment if there has not been a complete termination and severance of the
employer-employee relationship. Failure to strictly follow the employer's
termination policies, practices, processes and procedures regularly followed by
the employer indicates that the termination was not bona fide.
(d) Notwithstanding strict adherence to the
participating municipality's regular employment termination polices, practices,
processes and procedures or any other facts and circumstances, a termination is
not a bona fide termination of employment if at the time of termination there
is an expectation, understanding, agreement, or pre-arrangement, whether
written or oral, express or implied, between the municipality and employee, or
an agent of either, that the termination is or will be temporary or that the
person will be rehired in the future, whether such rehire is:
(1) for the same position or a different
position;
(2) at a greater,
lesser, or equivalent level of compensation;
(3) in the same or any other division or
department of the employer;
(4) as
a full-time, part-time or temporary employee; or
(5) as an independent contractor, whether
directly or through an entity.
(e) If a member applies for a withdrawal or
refund of the member's accumulated contributions under the Act, but the system
determines, in its discretion, that there was not a bona fide termination of
employment or that the member is or has become an employee of another
participating municipality before the refund payment has been issued, the
system may cancel the refund application.
(f) If a member applies for retirement but,
before payment of the retirement benefit begins, the system determines, in its
discretion, that there was not a bona fide termination of employment or that
the member became an employee of another participating municipality before the
member's effective retirement date, the system may cancel the retirement
application.
(g) If the system
determines, in its discretion, that a person who has retired with a service
retirement benefit under the Act is performing or providing services as a
purported independent contractor for the person's reemploying municipality and
that there was no bona fide termination of employment before the person began
performing or providing such services, then:
(1) the system may promptly suspend the
person's service retirement annuity payments in accordance with §852.108
of the Act; and
(2) the system may
require the person to repay, with earnings or interest, all amounts paid by the
system with regard to such service retirement benefit from the effective date
of retirement through the date of suspension, or may adjust any future payments
of the annuity so that the actuarial equivalent of the benefit to which the
person is entitled is paid, or may require a combination of repayment by the
member and adjustment of future payments.
(h) If the system determines, in its
discretion, that a person who purports to be an independent contractor may in
fact be a common law employee, the system may require the person to provide
such information regarding the independent contractor status of the individual
as it may deem necessary or advisable to make such determination, which may
include but not be limited to a filing of an IRS Form SS-8 by the person or the
municipality, which shall be subject to review and approval by the system
before filing.
Notes
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