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Partial Termination May Occur Over Multiple Plan Years, Court Affirms

The question of whether a partial plan termination occurred may take into account events in multiple plan years, according to a recent decision of the 7th U.S. Circuit Court of Appeals. The court's findings in Matz v. Household International Tax Reduction Investment Plan (2000 U.S. App. LEXIS 23601, Sept. 21, 2000) affirm the earlier district court ruling. Matz may proceed in his effort to establish that related corporate events across multiple plan years caused a partial plan termination and required full vesting of his account balances in the plan.

In the district court case (1999 U.S. Dist. LEXIS 14842, Sept. 9, 1999), Matz and the plan entered into an agreement to brief the court to resolve issues involving the partial termination claim. One issue was whether Matz may require the Household plan to consolidate plan years to establish that a partial plan termination occurred. The court ruled that there is no regulatory or legislative barrier to considering events over multiple plan years, provided plaintiffs could establish that the transactions were linked. (For a related case, see Sea Ray v. Robinson, 164 F.3d 981, 6th Cir. 1999.)

The 7th Circuit agreed with this assessment, noting that limiting the review of corporate events to a single plan year could allow "an unscrupulous employer to terminate some participants in December of one year and January of the next year," thus avoiding the protections built into the vesting provisions for partial plan terminations. The court noted that "there is nothing in the language of the rule itself that requires a significant corporate event to occur within a plan year."

Further, the court affirmed that both vested and nonvested participants should be included in determining whether a partial plan termination occurred. According to the court, this interpretation recognizes that the regulation provides that partial plan termination may occur when "a group of employees" previously covered are excluded from the plan by involuntary termination of employment.

Reprinted with permission from the December 2000 supplement to The Pension Plan Fix-It Handbook, ©Thompson Publishing Group, Inc., 2000. All rights reserved.

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