Failed ACP Test- Plan Termination

[Guest UKH]

Facts:

ACP test has failed. HCE is 40% vested. $1,000 needs to be distributed. Plan year is 12/31. Testing is done after March 15th deadline. HCE would receive $400 and $600 would be forfeited.

However here comes the kicker. The plan termination date is as of February 28, 2002. Do you consider HCE 100% vested and return entire $1,000 due to ACP failure or do you still return only $400 to HCE?

My feeling is you would still return only $400 for correcting the ACP failure. Since testing is done for last year 2001 and plan terminated in 2002 you still do the refund based on 2001 vesting.

Anybody agree or disagree with my reasoning?

[Guest deathbycashcall]

I doubt you would find guidance on such an odd situation, but I vote he is 100% vested at the time of distribution. How would you reallocate the forfeiture if you forfeit?

[Tom Poje]

I would disagree that he is 100% vested at time of distribution, simply because the test correction is for 2001 and at the time of failure (12/31) you don't know the plan is going to terminate.

But that is my opinion only.....

I recall reading many years ago the following is possible:

hce has a $3000 account balance in match. He is 40% vested, so his vested balance is $1200. so refund of $1000 is ok. after refund, his balance is $2000, he is still 40%, but his 'vested balance' is only $200, as he has already received some of it.

or it went something like that, I don't remember the exact details.

Now plan is terminated, everyone becomes 100% vested, and you end up at the same results.