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100% Vesting in Plan Merger for Terminated Employees


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Company A is merging with Company B. Company B's plan will merge into Company A's plan. Company B's plan document states that, upon a plan merger, account balances will be treated as if the plan is being terminated - hence, balances will become 100% vested. If there are terminated employees in Company B's plan who still maintain partially vested account balances, must ALL these balances be made 100% vested, or is there guidance on how far back one must go back to vest up? Only terms with less than 1 year break will be vested? 5 year break?

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What does the document say exactly? I'm curious because the language you are citing sounds quite a bit like what you would find in Code Section 414(l), which is the Code Section that discusses what you have to do when you merge two plans. Essentially, 414(l) requires that the amounts being transferred be equal to the amounts participants would have received if the plan making the transfer had been terminated. I take this to mean not that participants are entitled to 100% vesting, but just that what gets transferred to the surviving plan be equal to what they would have gotten had their current plan been terminated, i.e., that both vested and nonvested balances get transferred. If your plan document truly requires 100% vesting due to this merger, then the answer to your question must lie in the plan document and/or the plan administrator's interpretation of who would be entitled to full vesting in this situation, because the Code would not require full vesting.

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Another point, if in fact the plan is being terminated, is what language the plan has about "deemed distributions".

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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