Section 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.34 Tex. Admin. Code § 123.2
The provisions of this §123.2 adopted to be effective January 22, 2001, 26 TexReg 982; Adopted by Texas Register, Volume 45, Number 46, November 13, 2020, TexReg 8172, eff. 11/19/2020