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Government contract canceled, did PPT occur?


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Has a PPT occurred if a government contract was canceled resulting in the involuntary termination of employees?  We are having discussions about the sale of a division and the result of a PPT. Does the fact that a government contract was canceled trigger a PPT?  It did not affect more than 20% of the workforce. Does it matter if more than 20% were let go? We think that would be a "no brainer" and if more than 20% were let go, we would recommend a PPT.  The cancelation of the government contract was not COVID related so we do not believe that the COVID relief applies. Thank you.

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The fact that a government contract was canceled does not, in and of itself, result in a partial plan termination. The PPT is determined starting with a "rebuttable presumption" that all participant terminations are involuntary. You can then prove otherwise, if you can, based on facts and circumstances.

Were all these people already 100% vested in all accounts? If so, the PPT has no real effect.

There are few absolutes in this arena - see the Matz case. But in most circumstances, if your turnover rate was at least 20% involuntary terminations, then I agree, it is a PPT, barring unusual or egregious circumstances. If, as you say, it was less than 20%, then it would generally not be a PPT.

Your situation seems pretty straightforward. Don't forget to take into account the CAA relief, if applicable, with your March 31, 2021 participant count when determining PPT status for 2020.

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Thank you for the response.  The material effect is that only 1 participant is not already 100% vested.  Initially, we thought to just accelerate the vesting for this one participant but the client is concerned that this would be setting precedence.  A number of years ago, under a similar circumstance, counsel gave us an opinion that an expired government contract could be considered routine turnover and therefore, not a PPT.  Fast forward to current times, and the contract was simply not renewed. 

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