Would you call this a partial termination?

[2muchstress]

A doctor's office with 4 doctors and about 30 employees.

One doctor decides to leave the office to start a separate practice and she is taking a nurse and a nurse practitioner with her. The nurse and NP only worked for the one doctor who is leaving, they did not perform any services for the remaining doctors. All three are not fully vested.

The split is not on amicable terms.

Would this possibly qualify as a partial termination and allow all three to become vested?

TIA

[Guest Pensions in Paradise]

I'm not an attorney, but I'd say no for two reasons.

First, it doesn't appear that the three participants are being involuntarily terminated by the plan sponsor, sounds more like they are voluntarily quiting. A partial termination can only occur if the terminations are due to actions by the plan sponsor.

Second, even if these three were involuntarily terminated, they only represent 8.8% of the 34 participants. A partial termination can only occur if there is a significant reduction in the number of participants. My understanding is the IRS defines significant as more than 20% of the participants.

The second statement assumes all 34 employees are participants in the plan. Now if there are significantly less participants in the plan, then you may want to proceed differently. Because if these three participants represent more than 20% of the participants, they could always claim they were involuntarily terminated. Then it would be up to the plan sponsor to prove otherwise.

[david rigby]

I agree with PIP, except that "... IRS defines significant as more than 20% of the participants" may be a bit too precise. Certainly that is the dominant guideline, but partial terminations are always evaluated with respect to facts and circumstances.

BTW, there are several prior (and useful) discussions on partial terminations, which can be found by using the Search feature.

[Locust]

A problem here is that partial termination is a factual issue, and you'd have to get agreement from the remaining doctors that it constituted a partial termination, and as noted, there are good arguments that it is not. Especially if there is a dispute about whether the terminations were involuntary.

Better solutions would be to: 1. amend the plan to provide for 100% vesting for this group, or 2. split the plan and transfer the assets of the departing employees to a new plan for the departing employees.

[Kirk Maldonado]

2muchstress:

To do a proper analysis, you would need to divulge a lot more information than you have provided.

If you want to do it yourself, you should start reading all of the court decisions on partial terminations because you would be amazed at the different ways in which the courts have analyzed the facts. (The court decisions are not all consistent, either.)

If you don't want to spend untold hours educating yourself (and it appears that you don't want to retain an competent ERISA attorney to advise you on this matter), why don't you submit it to the IRS for a determination letter? Last time I checked, which admittedly was many years ago, the IRS would rule as to whether there was a partial termination.

[2muchstress]

Thanks for the replies. I have been out of this industry for a few years and do not have access to all the resources I used to. My wife is the NP that is affected, so of course I'm trying to get her to 100% vested any way I can