Partial termination

[pmacduff]

ok - Company sold a division that included the majority of the employees/participants. It is a partial termination for the plan due to the number of participants involved. The company will continue to maintain the plan for those remaining.

The owners/Trustees/ PA understand that the participants who are moving to the new company will become 100% vested due to the partial termination. They have no issue with that. However they would like to vest everyone 100% as of the date of the sale, including those staying, and then going forward anyone hired after that would be on the 2/20 vesting schedule.

Is this possible? Does anyone see issues with this? All of those involved are NHCE employees.

[Griswold]

I don't think it's a problem. When you're vesting everyone and doing so in a nondiscriminatory way, as seems to be the case here it, the government should view it as a good thing.

[ESOP Guy]

I think what is described above can be done. I do think there needs to be a plan amendment. I don't think the Partial Plan Termination rules alone get the desired results.

[My 2 cents]

When a partial termination appears to have occurred, it is always a good idea to cover vesting through an amendment, since otherwise it is not necessarily clear that even those displaced have been fully vested.

Note that when a defined benefit plan freezes all accruals, that could be considered a partial termination. To freeze benefit accruals, of course, there must always be a plan amendment. When freezing accruals, it is a really good idea to freeze plan entry, and since the freeze could be a partial termination, it is also a really good idea to grant full vesting to all those still employed on the freeze date. Some provisions concerning rehires may also be a good idea, so if a participant who had terminated before the freeze is later rehired, it will be clear what is to be done. For example, if someone had terminated with 40% vesting, was not active on the freeze date, and was subsequently rehired, what will be done with respect to the 60% of the pre-break accrued benefit that was not vested?

[ESOP Guy]

Another thing you might want to look at is any possible windfall that wasn't intended. Do you have someone not 100% vested but termed 2 years ago? You might want the amendment to be clear these people don't vest as of the sale date as long as this isn't seen as a person who would need to be vested per the Partial Termination rules.

In short I would spend some time looking at the people who aren't vested and think out possible fact patterns to craft a good amendment that answers all the possible questions up front. I can't tell you how many times I have seen hastily drafted amendments in these situations that cause unintended consequences down the road.

[Lou S.]

Seems like a simple amendments that states something like "All participant's actively employed on the date of the sale of __________ to ___________ shall be 100% vesting in their accounts."

or something to that effect. but I am not a lawyer.

[pmacduff]

Thank you for the responses. My original post should have said "vest everyone still actively employed on the sale date" as Lou said. Believe it or not there is only one participant (who termed back in 2006) that never took his balance out and is not fully vested. They don't want to vest him now.

Lou's verbage is exactly what the client wants to do; i.e. vest those actively employed on the sale date (in addition to those vesting due to the partial termination).

Thanks again!