Acceleration of Vesting and Plan Termination Prior to 12/31/05

[smm]

Can the service recepient accelerate vesting in connection with a plan termination and distribute the vested amounts prior to 12/31/05. Several of the commentaries suggest that this is possible, and I think I agree, but wanted to run my analysis through the message board to see if others agree.

Q/A 18© allows a plan to be amended on/before 12/31/05 to terminate the plan and distribute the deferred compensation. The section does not discuss vesting, but presumably, the ability to accelerate vesting to the date of the plan's termination, 12/31/05 is derived from Q/A 15(a) which allows a service recepient to accelerate vesting. Is this correct?

Thanks.

[KJohnson]

I've been looking at this as well. I don't see any direct reference allowing the acceleration of vesting upon termination of a plan prior to 12/31/05 although several secondary sources appear to think that this is o.k. Are people thinking it is implicit in Q&A18©. I don't think Q&A15(a) gets you there because adding a provision with regard to accelerated vesting would appear to be a material modfication not expcitly exempted under Q&A18.

[smm]

don't think that it is implicit in 18©. I thought that it could be derived from 15(a) because that section allows the service recepient to reduce the number of years for full vesting. But maybe this will be addressed tomorrow.

[KJohnson]

Listening to the conference now. They just said that acceleration of vesting in connection with an '05 termination would be a material modification.

[TCWalker]

No, I thought I heard it slightly different. If the acceleration is automatic under the terms of the Plan, pre Oct 3, 2004, then it's not a material modification upon termination. Once meeting that standard, timing and manner of payment in '05 may be by Er discretion.

[smm]

When would acceleration be automatic? Would the plan have to say that "...upon termination of the plan, all participants are 100% vested...." before the plan is amended to terminate. I've seen plans that do not contain this language. Does that mean that if those plans are terminated the assets revert to the employer. If so, no taxation occurs. Of course, the employer could simply "bonus" the affected participants with the amount of the non-vested amount. If there is no tracing, then everyone wins.

[BFree]

What documentation is need to terminate a nonqualified plan?

Thanks-in-advance.

[mbozek]

What does the plan document require as the procedure for termination? Corps usually terminate by a resolution similar to one used to terminate a Q plan unless the plan can be terminated by direction of a corp officer. Plan may need an amendment to include provisions required by 409A. Participants will have to complete distribution forms. Some sponsors file a termination notice with DOL. There may be additional requirements for transferring certain types of assets, e.g. LI.