Partial Plan Termination--Who Do You Vest?

[Guest NPWA]

There is a 401(k) plan that has clearly had a partial plan termination based on an over 50% reduction in the number of participants. The question I'm struggling with is to what extent are current, active employees "affected participants" for purposes of full vesting? Specifically, are currently employed participants hired subsequent to the substantial reduction "affected participants" for purposes of the full vesting? My hunch from what I've read is yes, but I'm not sure.

Any thoughts? Thanks.

[Guest asire2002]

No, only persons affected by the partial termination (e.g., those whose employment was involuntarily terminated or who were constructively discharged) are entitled to full vesting. Those who kept their jobs, and those who were hired later, are not affected and are not entitled to full vesting. I'd bet there are some IRS rulings or even an examination guideline that would clarify this for you.

[MGB]

Although asire's answer is correct, you will not find definitive answers from the IRS. Their entire writings on the subject are in the IRS Plan Termination Handbook (for agents), but is ambiguous on most technical issues. There are a handful of old Revenue Rulings, but they were primarily focusing on whether a partial occurred or not. See RR 81-27, 72-439, and 73-284.

The "real" rules (basically, only interpretations) have been the result of numerous court cases. If you have access to it, there is a good summary of many of the cases in "Analyzing Vertical Partial Terminations" by Michael Collins in the Journal of Pension Planning & Compliance, Summer 2001, Panel Publishers.

[david rigby]

you might also do a search on these message boards.

For example, see this thread and its references:

http://benefitslink.com/boards/index.php?showtopic=10187