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Plan Termination and vesting


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Hi,

I have a plan that terminated on 12/31/08, there are a number of participants that terminated in prior years, do they also become 100% vested in all money types? I would think that they would otherwise they would add to the forfeitures and create additional headaches...

Thanks,

Jasofk

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It is very likely that there is language in the plan document that addresses the issue.

IRC 411(d)(3) says all affected participants must be 100% vested upon plan termination, but the law does not define "affected participant".

The IRS has taken the view that an affected participant is anyone who has not forfeited their nonvested interest in the plan as of the termination date. See GCM 39310 and FSA 1992-1023-1.

As WDIK said, you need to check the plan document to determine when forfeiture occurs. For example, the plan document we use says forfeiture of the nonvested benefit occurs after 5 consecutive breaks-in-service or after a cash-out distribution. An individual who is 0% vested is deemed to have a cash-out on their date of termination unless they are eligible for an employer contribution at year-end, in which case the forfeiture occurs as of the first day of the following plan year.

If your TPA was on top of forfeiting nonvested balances timely, then it is likely that those terminated employees who still have an account balance are "affected participants" who became 100% vested on the date of termination.

Laura

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