Guest RJW Posted October 12, 2005 Posted October 12, 2005 Q/A18c of Notice 2005-1 allows a grandfathered plan to be terminated in 2005 provided all deferrals are paid out. Does this mean all vested and non-vested deferrals? If non-vested deferrals are vested and paid out does a material modification occur?
E as in ERISA Posted October 13, 2005 Posted October 13, 2005 Non-vested would not be part of the grandfathered plan.
JDuns Posted October 14, 2005 Posted October 14, 2005 The provision allowing termination of participation during 2005 is intended to allow an employer to end the plan rather than deal with the new limits in 409A. If the plan is terminated before 1/1/2006, each employee would be taxed on their benefit in 2005. In my opinion, a plan could (but is not required to) accelerate vesting and pay the non-vested portion of the benefits. If the entire plan is terminating, I do not think that there is any 409A issue. However, if you allow participants to elect to terminate their participation in an otherwise grandfathered plan, I think that you have a material modification that would result in a loss of the grandfather status for any non-terminating participants.
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