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Vesting Due To Company Sale/Forced Terminations


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I have a client where the owner sold the company, with all of the employees being hired by the new company.

The Plan itself is staying open for a few years, as the owner working as a consultant for who she sold to and getting paid through the old company.

Basically, all of the employees are terminated except the owner and her son.

The question is, in this type of situation what happens to the participant's vesting?  I know on a plan termination everyone is automatically 100% vested, but this isn't a plan termination.  But in this case, does that still apply?

Thanks in advance!

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? Multiemployer Partial Termination in 2020.  Facts & circumstances - Plan is 115% funded (no With Liab or "to the extent funded" issue.  Single large employer who was the only one in the region of the country, shutdown.  Plan's permanent break is 5-years.  Must plan vest back to 2015?  Hyperbole - participant earned 501 hours (1/2 credit) in 2015 and quit.  Must plan protect and vest his accrued benefit for the 1/2 year of service ?

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Basil - multiemployers are a different animal.  No simple answer to that question.  You will need to talk with Fund actuaries/attorney.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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That's a somewhat tricky question. Many in the pension community don't agree with the apparent IRS interpretation, but the IRS appears to take the approach that even though you don't take into account voluntary terminations to determine IF there has been a partial plan termination, once you have made the PPT determination, then all the participants who terminated during the applicable period are 100% vested, whether or not the termination was voluntary or involuntary. I have some old scribbled notes here referring to Revenue Ruling 2007-43. But I haven't checked to see if there is additional, possibly newer guidance.

Basically, who wants to fight the IRS over 1 employee? I'd just vest them and be done with it. (IMHO, my feeling is that their apparent stance is ridiculous, but somehow they don't seem to consult me on these things...)

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On 6/29/2021 at 11:14 AM, Belgarath said:

That's a somewhat tricky question. Many in the pension community don't agree with the apparent IRS interpretation, but the IRS appears to take the approach that even though you don't take into account voluntary terminations to determine IF there has been a partial plan termination, once you have made the PPT determination, then all the participants who terminated during the applicable period are 100% vested, whether or not the termination was voluntary or involuntary. I have some old scribbled notes here referring to Revenue Ruling 2007-43. But I haven't checked to see if there is additional, possibly newer guidance.

Basically, who wants to fight the IRS over 1 employee? I'd just vest them and be done with it. (IMHO, my feeling is that their apparent stance is ridiculous, but somehow they don't seem to consult me on these things...)

What if it's someone who terminated 2 years prior to the partial termination?  Vesting would still apply to them, correct?

Also, this applied to Defined Contribution plans the same way right?

Just wanted to make sure.  Thanks!!

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  • 2 weeks later...
On 6/9/2021 at 7:15 AM, EBECatty said:

It's a partial termination, which would vest everyone. 

Just wanted to followup on this.  It would 100% vest the people who were impacted by the partial termination.  What about those who terminated in the year prior who haven't taken a distribution?

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