Terminating plans-Vesting-Forfeitures

[Guest Gordy]

This question ties to a forum of about a year ago.

Employee A terminates and receives a cash out distribution. Plan document says the forfeiture occurs on the earlier of 5 year break or cash out.

Employer wants to terminate plan, pay off the other six participants before the end of the current year which is August 31, 2004 so that only one filing is due.

Resolution to terminate will be made and signed after the pay off of the above employee.

How do you allocate the forieture from employee A? Plan documents has compensation choices of: full years compensation or entry date forward. Using full years compensation means we hang around until August 31, 2004. Distribution can't occur until after that date and there is another filing. There is an option of having a short year, but, I don't see that this helps.

In my mind I'm trying to be able to use compensation through, say, April 30 to use to allocate the forfeiture. Anyone to my rescue?

[WDIK]

Wouldn't it solve your problem, if in conjunction with the resolutions to terminate the plan you select an appropriate date for the cessation of accruals?

[rcline46]

I would be concerned about discriminating against employee A. Waiting until they are paid to get access to their forfeiture. Why not let them become 100% vested and avoid the problem?

I would not want to defend this situation in an audit.

[Blinky the 3-eyed Fish]

I would.

[jquazza]

Blink,

I agree, you can defend that position, however, you should inform the terminated participant of the impending termination of the plan and how it affects his/her benefits, don't you think?

The participant would probably not request a distribution then and wait to become 100% vested.

[alanm]

There are several cases that define this situation and interpretation of 411(d)(3). One to look at would be Ninth Circuit court opinion Bayer, 769 F. Supp. 225, by District Judge Aver Cohn. Another is Flanagan, 3 F.3d, 1249. Another is Borda V. Hardy, March 5, 1998 No. 95-75493, Judge Nelson, circuit judge; Carr, district judge. The answer is there.

[Guest Gordy]

Thanks, Alanm.