Vesting in frozen plan

[Moe Howard]

Participants in a PSP vest under a 5-year cliff vesting schedule. The plan sends notice to participants that benefit accruals will cease on 01/01/04. The plan does not terminate, nor does it intend to terminate (in other words ...plan assets will not be distributed by 01/01/04). Benefit accruals are simply frozen. So, I guess you could say that there is a "partial termination".

The plan started 10 years ago.

My Question:

Do participants with less than 5-years of employment (less than 100% vested) as of 01/01/04 ..... continue to vest?

[Blinky the 3-eyed Fish]

Why would you send a notice saying that accrual cease in a PS plan? Why not just not make a future contribution? You state that you guess that there is a partial termination, yet ask if people less than 100% vested continue to vest? If you are thinking it's a partial termination, wouldn't you make all the actives 100% vested?

I think because there was the issuance of the notice that the plan is frozen, there is indeed a partial termination. However, I think that the partial termination could have been delayed significantly had the notice not been issued. A couple, 3, or so years of no contributions would not have triggered the partial termination by itself, but the notice most likely did.

[david rigby]

Blinky's summary is correct.

[Moe Howard]

Blinky, thanks for your reply. But you never answered my question. Do participants continue to vest in a plan that is partially terminated , but not terminated?

Partial termination does not result in immediate 100% vesting by all active participants .... but termination does. The plan could remain frozen for several years and then benefit accruals could start again. Do participants continue to vest during those frozen years ?

[Blinky the 3-eyed Fish]

Partial termination does not result in immediate 100% vesting by all active participants .... but termination does.

Disagree. The actives are the affected employees. Who do you think would be 100% vested then in this case?

Yes, vesting years continue to be earned.

[Moe Howard]

Who do I think would be 100% vested? ... Those participants with 5-years of service, that's who.

[Blinky the 3-eyed Fish]

Then you don't think it's a partial termination? You thought it was in your first post. Or do you think it's a partial termination, but no one gets specially 100% vested?

[MGB]

Moe,

"partial plan termination" = "100% vesting of affected participants"

The ONLY relevance the term partial plan termination has is that it invokes full vesting.

[Moe Howard]

OK guys thanks. But as you can tell ... I must be confused.

So, what is the differences between "partial termination (frozen plan)" and "termination" ?

Is it simply that a partial terminated plan has to continue to file the Form 5500 each year uintil it is actually terminated ?

The one thing that both have in common is that all active participants are 100% vested .... right ?

[david rigby]

MGB states very succintly what is significant about a partial termination. It is NOT the same concept as a frozen plan.

Several discussions about on the message boards. Here is one that is too verbose (OK, I wrote it.)

http://www.benefitslink.com/boards/index.p...ct=ST&f=1&t=244