34 Tex. Admin. Code § 107.4 - Bona Fide Termination of Employment

(a) Distributions without a bona fide termination of employment are prohibited under Texas Government Code, § 842.110(a) and (b). A distribution of benefits to a member before there has been a bona fide termination of employment under Texas Government Code, § 842.110(a) is an in-service distribution and an operational error which could lead to a plan disqualification under the Internal Revenue Code and results in the assessment of taxes, back taxes, interest and penalties against the subdivision and its participants.

(b) The term "employment" under Texas Government Code § 842.110(a) includes service as an employee and service as an appointed or elected official.

(c) A person who is employed by, or holds an elected or appointed position or office in, a subdivision is in active employment and is not separated from service for purposes of retirement eligibility and is not eligible to receive a distribution of benefits with respect to the subdivision before a complete and bona fide termination of employment occurs. A member who has experienced a bona fide termination of employment is an inactive member.

(d) Whether a termination of employment is a bona fide termination is dependent on the facts and circumstances surrounding the termination.

(e) With respect to employees of a subdivision, a termination is not a bona fide termination 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 suggests that the termination was not bona fide.

(f) A termination is not a bona fide termination merely because the period of separation of employment from the employer, or separation from service from elected or appointed office, is greater than one calendar month. The statutory requirement of a break in service of at least one calendar month is a further limitation upon the eligibility of a reemployed person to have received a distribution and is in addition to, and not in lieu of, the requirement that the termination of employment must be a bona fide termination of employment.

(g) Notwithstanding strict adherence to the employer'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 or agreement, whether express or implied, between the employer or 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 performing essentially the same services that the individual was performing as an employee.

Notes

34 Tex. Admin. Code § 107.4

The provisions of this §107.4 adopted to be effective July 26, 2012, 37 TexReg 5489