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Partial Termination?


stephen

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Company A is a fully owned subsidary of a large corporation. Company A sponsors a plan with approximately 2,000 participants.

One entire location of 100 participants is being closed. Of the 100 participants less than 10 are being offered a position at another locaiton.

Does this qualify as a partial termination for the 90+ participants that are being terminated without an opportunity to complete their vesting?

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There is no clear answer, the rule is a "facts and circumstances" test.

Assuming you say it is not a partial termination and a participant sues you in court, the answer will depend on which court you get and what precedent they look at. Most will use a 20% standard (although PTs have been found in lower and no PT in higher percentages from time to time). This comes from an old IRS internal document on plan terminations that is not around anymore.

Then, different courts look at the counts differently. In some jurisdictions, they would call your layoff 90/2000 = 4.5%, probably not a PT.

However, some courts have recently used a nonvested count standard (i.e., only look at those that could have their vesting affected). In that case, you would count the number that are laid off that are not vested and divide by the total that are not vested. This is typically a much different percentage than the above calculation and could be more than 20%, even though the above calculation is only 4.5%.

The fact that 90 of 100 at a location are laid off is irrelevant. It is based on the whole plan.

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MGB is correct. Search the message boards for more discussion.

Another direction the employer could take is amend the plan to give 100% vesting to the 100 participants. This makes the point moot. It might not cost much either.

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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Company A started the plan in 2001 thus no one will vest until 2005. The annual contributions have been quite large so many of the account balances are substantial.

Company A wants to vest everyone in the plan especially the affected participants who are being terminated (with no benefit from the plan), however the parent corporation wants to wait until at least 12/31/05 before vesting.

My thought is why not vest at least the affected participants so if during the course of the next two years more locations are closed there is not even the possibility of having to go back to reinstate and then pay the affected participants their account balance.

Pax: By the way, I did search for a discussion before making this post and did not see this particular issue addressed. Thank you for the suggestion.

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OK. The decision to give 100% vesting is often made after a determination "it doesn't cost much". Your situation could be different, and a new plan certainly qualifies.

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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