Plan sponsor's bankruptcy results in full vesting for all participants

[Guest Furry]

:confused: I have heard that when a plan sponsor files for bankruptcy, that there is accelerated vesting for all participants in the plan.

Anybody know if this is true or not?

And, are there any "events" that would accelerate the vesting to 100% for participants of a plan?

Thanks

Furry

[david rigby]

The likely scenario you describe is that bankruptcy would automatically trigger the termination of the plan, which would in turn trigger 100% vesting.

Absent any regulatory statements on this (sorry, don't know), I don't think that scenario is valid, with a possible exception for liquidation in bankruptcy.

Anyone else?

[MGB]

As Pax states, it is the termination of the plan, not the bankruptcy filing that triggers the 100%. Many companies file for reorganization (a type of bankruptcy) and come out of it as a viable employer again. This would not trigger the 100%.

However, in many bankruptcy situations, numerous people get laid off. The termination of a large group of participants can be viewed as a "partial plan termination," which also triggers 100% vesting.

The laws on partial plan terminations are very vague and whether or not one has occurred has only been settled in courts. But, given all of the history of court decisions, if a large proportion (e.g., 30%+) of nonvested participants have been laid off, you have one. It does not have to be one layoff, it can be multiple. However, all of the layoffs need to be associated with the same "event" (heading into bankruptcy).

[Kirk Maldonado]

What does the plan say?