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vesting for terminated participant


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Medical group sells practice July 31, 2018.  Former doctor employee terminated employment in 2016 and is 20% vested in PS source.  The terminated doctor has not incurred forfeiture since he has not been cashed out nor has he had 5 break in service years.  We believe full vesting must occur here.  But the client does not want to provide full vesting due to termination circumstances.  I'm right - right?

Thank you in advance for comments. Tom

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That depends - has the plan been terminated? Just because the practice was sold doesn't mean the plan is terminated. 

Was it a stock sale? Do the new owners want to keep the plan?

Was it an asset sale? Are the current owners terminating the plan? 

Upon plan termination full and immediate vesting is required for all affected participants. When there is a partial termination the IRS is clear that only those that terminated during the year are made 100% vested. For full plan termination though, everyone with a balance is affected, so I don't see how the doctor wouldn't be 100% vested. Maybe someone can provide a cite for what "affected participant" means if different than my understanding. 

I'm a stranger on the internet. Nothing I write is tax or legal advice. 

I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?

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there is one case described in the ERISA Outline Book

if termination of plan was part of dissolution of sponsor then basically there would have been no way a terminated person could have returned to work in the future and earned more service, so therefore would not be 100% vested. this was a private letter ruling, so even the Book recommended use with caution.

chapter 4 part A 1.e


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