Employer with multiple stores sold one store, employees 100% vested?

[Guest Kriso]

I have an employer that has several store locations and maintains separate payrolls. All employees are in the same 401k plan. (yes, its a nightmare but that's another post).

The employer sold one store and all those employees went with the new owner. Are they 100% vested?? I'm pretty sure YES but want to double check.

[Mike Preston]

It depends on the number of participants that are defined as "affected". Once you have that number, you then need to determine the percentage of the total they represent. If less than 10%, it is pretty clear that there is no partial termination and there would be no need to vest. If greater than 30%, no question but that it is a partial termination. Anywhere in between is a judgment call that requires discussion with plan counsel. In fact, discussion with plan counsel sounds like a good idea even if the numbers are fairly clear.

For example, some circuits, I believe, have come up with the astounding interpretation that the percentages determined should be based only on those that are not already 100% vested. That would significantly change the percentages.

In short, there is nothing that can be determined from the information you have given and plan counsel is your best bet.

[mbozek]

The employer has the following options :

1. Do nothing. See if any former employees ask about whether their benefits are vested.

2. Vest the terminated employees. Remember only employer contributions for employees with less than 5 or 6 years of service can be forfeited. If the amount is small why not vest?

3. Hire an attorney to review whether a partial term occurred. General rule is that partial termination requires involuntary elimination of at least 20% of the covered employees. However, there are issues as to what participiants are put in the denominator.

4. Ask the IRS for a determination of whether a partial termination occurred.

Option 1 is no cost, option 2 costs only the amount of the forefited benefits. Option three and four will require the sposnsor to pay real dollars.

[RCK]

Kriso,

I agree with both of the preceding posts, but would like to give you something else to think about:

(1) Check to see if this is covered in the purchase agreement.

(2) If you do decide to treat it as a partial termination, you only have to vest those people affected by the event. This generally means people who are actively employed at the sold store on the date of sale. But we have had situations where it was widely known that the store was for sale, that we treated as a partial termination, and vested everyone who was actively employed 30 days prior to the actual sale date.

(3) If you do decide to go the partial termination route, I'd suggest a plan amendment saying that you are treating the event as a partial termination.

RCK