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Vesting


katie58

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I need some help from the experts.

I have a group that offers Safe Harbor Automatic Enrollment.

They currently have a 2 year vesting schedule.

They will be terminating 100 employees, due to the fact they are selling off a division.

As part of the termination package to these 100 employees, they want to offer 100% vesting.

They currently have 2500 employees, so this would not be considered a partial plan termination.

They have never offered any other terminating group 100% vesting.

The 100 terminating employees are a combination of HCEs and NCHEs.

Is this permitted?? If so, under what circumstances?

Thanks very much!

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Would they need to amend their plan to permit this?

Would they always need to vest terminating employees at 100%?

Thanks very much.

I'd recommend they amend the plan. As to the need to do this in the future, I think that's part of the reason to get it done by amendment. I don't see it as a requirement for the future but it certainly will set expectations.

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This would be offered to both NCHEs and HCEs so I guess it would not be considered discrimination.

I wonder if the amendment should be worded to specify the specific division name that will receive this benefit.

I am concerned that they will set a expectation with their current employees.

I appreciate your help. Thanks!

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If you amend the plan, you must give an SAR to only the affected participants, right? So, the still-employed people won't need to know of it.

And I would construct the amendment with something like: Those participants whose employment ended on [date] shall become 100% vested in all accounts.

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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Careful reading of the plan document will probably reveal (as suggested) that nothing in the document will provide the desired 100% vesting. Therefore, an amendment is required, not just suggested.

The amendment could, but does not require, stating any reasons for giving the advanced vesting. Nevertheless, corporate management should be able to succinctly articulate those reasons, if asked.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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You might only give the SAR to the affected participants but people talk....or text.

I don't think I ever spoke to anyone else about the vested percentage in my 401(k) or DB plans.

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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I think you folks mean SMM (summary of material modifications) not SAR (summary annual report) but I agree. Amend the plan to vest just those folks who terminated as a result of the business transaction and be done with it.

In the future, similar transactions can be done on a case by case basis with nor precedent set by the prior amendment. Each business deal can stand on its own. Maybe as part of this transaction it was agreed that participants involved would be 100% vested. But at any rate I don't see a problem unless nearly all the terms are HCEs.

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How about an amendment to the effect that if participants' employment ends because the company sells off their division before they have 2 years of service for vesting, then those participants will be 100% vested.

Probably wouldn't have to try to hide the amendment from the other 2400+ employees.

Whatever you do, run it past your ERISA counsel before amending.

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you have 4% termination

The ERISA Outline Book chap 4 section vii part B1b1

comments on the Matz vs.....

10 to 20% probably no partial, but check facts and circumstances

20 to 40% most likely partial, but check facts and circumstances

40% or more - most likely (though it is possible it is not. I actually had a plan that was around 30% as I recall, and the IRS asked why it shouldn't be a partial, and I said the company was a computer industry (e.g. high tech employees) and the agent agreed that industry had high turnover so no problem.

under 10% - assume no partial termination

again the IRS has never officially adopted a benchmark.

But in your case, I don't see it even getting to facts and circumstances.

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