Partial Termination

[Christine Roberts]

If a participant is terminated as part of a possible partial plan termination, then rehired without loss of any vesting or plan benefits (other than failure to make salary deferrals during absence), can that person be disregarded for purposes of counting those affected by the partial termination?

Would answer be different if person lost eligibility for employer matching contribution due to failure to defer during absence?

[Belgarath]

I can't give you a cite for this - it is only my opinion, in general, not knowing the specifics of timing, etc.

Let's say the PPT occurred in 2002, and you are doing a 12-31-2002 valuation. The individual is rehired in 2003, and is immediately eligible. I'd say that since the PPT occurred in a prior year, you'd have to count him as 100% vested as of 12-31-2002. And this cannot then be taken away.

If the PPT and rehire take place during the same plan year, then it seems tricker, and I don't have much of an opinion without thinking about it for a while!

[Mike Preston]

411d6 appears to require that once the participant is 100% vested due to a partial termination, that a subsequent rehire wouldn't unring the bell.

[david rigby]

I agree with above analysis. As always, evaluate every situation carefully. Note that a partial termination could occur over a period of time. Example, a termination on March 1, involving 10% of the employees/participants, and another layoff on October 1 involving another 10%. If the indvidual in question was in the first group (which did not trigger a PT), the second layoff might trigger a PT for both groups.

[Kirk Maldonado]

My recollection, based upon some research that I did a few years ago, is that different courts have used different methodologies for determining if there was a partial termination.

You might want to see if the Ninth Circuit has taken a position on this point. (I'm not aware of any Ninth Circuit decisions on partial terminations, but I've never researched that point.)

[Guest HFOSTER]

Would new contributions by a rehired participant also be 100% vested or would all contributions made after the date of rehire revert back to the regular vesting schedule?

[Guest ronald mexico]

a little different question:

if the ER has 4 staff and fires 2 in november and then hire 2 ee's to replace in january, would anyone consider that a partial term?

[david rigby]

Always, a partial termination must be evaluated under its own facts and circumstances. What is meant by "fires"? Were the two employees embezzling, sleeping on the job? Were they terminated because the boss thought he/she could not afford that much staff, then decided two months later that was an incorrect assumption? Was the severance of employment really involuntary? etc.

[Belgarath]

Pax - your reply brings up an interesting point. Are you allowed not to count employees who were terminated for cause? Let's take your example of sleeping on the job - 5 out of 10 employees were caught sleeping on the job, and got fired. Any reasonable person would conclude that they should not be rewarded by becoming 100% vested. Has there been any guidance, ruling, PLR, etc., that addresses this? I've never seen any, and although this particular issue has thankfully never come up in one of our cases, I've often wondered.

Would you simply take the approach that they shouldn't be counted in determining if a PPT has taken place, or would you apply for a determination letter? Have any of you out there ever applied for a determination letter in this circumstance, and if so, with what result?

[Guest ronald mexico]

Belgrath--they were fired for poor performance.

and it took a few months to replace them.

[Guest ronald mexico]

related q

if the ER is moving out of state and does not want to offer 2 of the 4 ee's the same position in the new out of state office--would you consider that a partial term?

[david rigby]

... Are you allowed not to count employees who were terminated for cause? ...

Good questions. The "guidance" indicates that all terminations of employment are assumed to involuntary until the sponsor proves otherwise. IMHO, just because a termination is determined to be involuntary does not mean it must be considered an "affected" participant. In other words, the principle of a partial termination is to provide vesting to those participants who are no longer able to earn vesting service due to action of the employer (OK, oversimplifed). An employee sleeping on the job, or embezzling, or caught in a lie on his/her job application, etc. may be terminated, but the cause is (at least) partially due to action of the employee.

Applying for a determination letter may be overkill. The sponsor should evaluate the cost of the vesting and decide if that cost is acceptable. Often, it is relatively small.

[Belgarath]

Seems reasonable.

In a real case last week, we had a census come in, with three employees listed in the "terminated" column. Next to that column, there's a column entitled "reason for termination." I assume Calvin Coolidge filled out this census, because the reasons for the three terminations were respectively listed as:

shot

slow

lied.