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Guest Dan Shea

partial plan termination???

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Guest Dan Shea

Situation as follows employer has a DB plan that cover six employees (owner, wife, son, daughter) two unrelated "common employees".

wife and son quit in 1997 and are paid out the company adopts an ammendment "freezing" the plan in early 1997, CPA say whoa you need deduction ammendment adopted to unfreeze plan. subsequently two common law employees terminate employment. question becomes are terminated common employees (ie non family, non owner related), vested 100% given freeze unfreeze and 60 % of all employees being gone?

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I assume that the freeze amendment did not also give 100% vesting. If it did, no brainer, since you can't undo that by amendment.

My judgement is that the two non-family EEs who terminated do constitute a partial termination. but there is still a facts and circumstances issue in this determination. For example, if one of them terminated by dying, then you probably don't have to count that against the 20% test.

Look at IRS form 5310 and instructions. There is a question (don't remember the line number but it is the bottom of page 2) that asks for the number of non-vested terminations by year. If over 20%, you are requested to show why it will not constitute a Partial termination.

The fact that the son and wife quit (by the way, 4 out of 6 employees quitting is 66.7%, not 60%) should not have any effect on the vesting of the 2 others. If the 2 others are a partial termination (2 out of 6 is 33%) then that by itself will cause 100% vesting.

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I assume that the freeze amendment did not also give 100% vesting. If it did, no brainer, since you can't undo that by amendment.

My judgement is that the two non-family EEs who terminated do constitute a partial termination. but there is still a facts and circumstances issue in this determination. For example, if one of them terminated by dying, then you probably don't have to count that against the 20% test.

Look at IRS form 5310 and instructions. There is a question (don't remember the line number but it is the bottom of page 2) that asks for the number of non-vested terminations by year. If over 20%, you are requested to show why it will not constitute a Partial termination.

The fact that the son and wife quit (by the way, 4 out of 6 employees quitting is 66.7%, not 60%) should not have any effect on the vesting of the 2 others. If the 2 others are a partial termination (2 out of 6 is 33%) then that by itself will cause 100% vesting.

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