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Vesting


PS
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Hi, 

When a plan is terminating as per IRS all participants would require to be 100% vested, will this included both Terminated and active participants? one of the plan that is terminating has participants terminated back in 2020, client feels these participants should not be 100% vested and only active participants need to be 100% vested is that true? 

Thanks

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I agree with the first answer but will add:  read the plan document very carefully.

When does the plan say a person forfeit their unvested balance.  Did this person forfeit but the recordkeeping just not showing it yet?

For example:  I have plans that say a person forfeits the day of termination or the last day of the year of termination.   A person who terminated in 2020 might have forfeited already per the document but the recordkeeping system simply hasn't caught up to that reality.    For example I am still just getting some of my 2020 census files to even know if a person is terminated.  ESOPs tend to be balance forward not daily. 

So read the document carefully and decide when this person should forfeit per the document and compare that to the plan termination date.   If the document says they have forfeited already and it is just a matter of bookkeeping you can forfeit the person in my mind.    Otherwise the person gets what I call the plan termination windfall and there is nothing that can be done about it. 

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For a partial termination, the "affected by" requirement might, depending on facts and circumstances, exclude folks terminated in prior year if they were normal churn of employees. However, on a plan termination anyone who still has an account must be fully vested.

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12 minutes ago, Susan L. said:

Do the same rules re full vesting upon plan termination or partial termination and 5 years until forfeiture apply to a defined benefit plan?

I don't know, but I recall that question's being raised by IRS, maybe 25 years ago, after the rules were clarified for DC. Maybe someone will know if it was ever resolved.

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2 hours ago, Luke Bailey said:

I don't know, but I recall that question's being raised by IRS, maybe 25 years ago, after the rules were clarified for DC. Maybe someone will know if it was ever resolved.

It was, they are.

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Some of the participants were terminated in 2017-2018, however the plan is terminating in 2021 do these participants still need to be 100% vested? I believe YES since they still have balance in the plan. 

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On 7/19/2021 at 12:21 PM, PS said:

Some of the participants were terminated in 2017-2018, however the plan is terminating in 2021 do these participants still need to be 100% vested? I believe YES since they still have balance in the plan. 

Yes.

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