| (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.
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