Bad Boy Clause

[Guest taj32z]

Does anyone have any information on if it is still allowed in plan documents to have a "bad boy clause"?

[Medusa]

ERISA Outline Book:

Forfeiture for cause. This rule is typically used to forfeit "excess vesting" under a forfeiture

for cause provision (sometimes known as a "bad boy" clause). The plan must define "cause" for this

purpose (e.g., theft, violation of covenant not to compete, or other stated wrongdoing). The IRS

permits a forfeiture for cause only if the vested amount forfeited is in excess of the minimum vesting

requirements. Treas. Reg. §1.411(a)-4T©, Example (1); Rev. Rul. 85-31, 1985-1 C.B. 135. For

example, if a non-top-heavy plan provides 25% vesting per year of service, with 100% vesting at

four years, the plan is being more liberal than the five-year cliff vesting requires. 3 Under a forfeiture

for cause provision, an employee with less than five years of service could forfeit his vested interest.

Court cases addressing the forfeiture for cause provision include Hepple v. Roberts & Dybdahl, Inc.,

622 F.2d 962 (8th Cir. 1980); Hummell v. S.C. Rykoff & Co., 634 F.2d 446 (9th Cir. 1980); Noell v.

American Design, Inc. Profit Sharing Plan, 764 F.2d 827 (11th Cir. 1985).

[david rigby]

My experience is that forfeiture clauses are not common in qualified plans, even where the vesting is more generous than the minimum. However, forfeiture clauses are common in non-qualified plans.

[Guest taj32z]

This plan is qualified, on a non-standardized prototype document. If the client wanted to add such a clause - am I correct in that this would take the document out of prototype status and it would need to be submitted to the IRS for an approval letter?

[WDIK]

Changes made to the language of a prototype document result in an individually designed plan. An altered plan would no longer be able to rely on the prototype's opinion letter.

[Medusa]

There is some question in my mind as to which participants such an amendment would affect. It might be that benefits accrued up to the date the amendment is adopted would be protected.