Distributions in a Small Medical Practice

[DP]

I have a doctor's practice who had two staff members. All three were participants in a Safe Harbor 401k and are 20% vested. The two staff members terminated their employment in June 04 leaving only the doctor as a participant.

There will be no more employees to enter the plan until July 1, 2005.

I was thinking ahead to making the distributions for the two terminated staff members. Would this be considered a partial termination even though there was no layoff? These two employees terminated on their own free will.

Should I make them 100% vested? Thanks.

[WDIK]

I may be missing something due to 10/15 overload, but aren't "safe harbor" 401(k) contributions fully vested already?

[DP]

Yes, the Safe Harbor is 100% vested, but they also have Employer contributions which fall on a vesting schedule. Sorry, I should have put this in with my facts.

[Guest Pensions in Paradise]

I find it highly suspicious that both staff members quit on their own free will at the same time. Keep in mind that even if they did quit voluntarily, any actions by the employer to prompt their quitting would be viewed as a partial termination. I would fully vest them to avoid any headaches down the road.

[Lori Friedman]

Maybe the two employees ran off together and are living happily ever after?

[DP]

Well I do know the two staff members were fed up with the doctor. That's why they both quit. So I guess his actions did prompt their terminations.

I'll go ahead and vest them 100%. Thanks!

[rcline46]

If the Dr. was just an SOB and they quit I don't think that gives rise to 100% vesting.

If the Dr. said he was closing his doors in 2 mos and they quit then that would give 100% vesting.

So don't be too quick to jump!

[david rigby]

Who has authority to determine the answer? Likely the TPA does not.

[stephen]

I hope DP returns to the topic to see the dissenting points of view.

I agree the conservative approach is to vest the participants but who's decision is it? The TPA's, doubtful. The plan's attorney or perhaps the doctor?

Another question that comes to mind is: How much money is involved?

[DP]

I'm still here and have taken no action yet. The unvested amounts for the two staff members are around $800.00 each.

I just heard that the doctor will probably be selling his practice to the hospital by the end of the year. Nothing definite yet.

[R. Butler]

The TPA rarely ever has the authority to resolve any issue, but the TPA should be able to provide some sort of definition of partial termination for the client. The focus is whether or not termination was voluntary. The determination is based on all facts & circumstances. See IRS Reg. 1.411(d)-2(b)(1).

In these situations we generally advise the cleint to consult an attorney. The good doctor might not waste his time and money over $1,600, but that is his decision.