Spin-off vesting issue

[dmb]

A mutli-employer plan is considering spinning off one of the two employers. The spun-off employer will be setting up a new 403b Thrift Plan. Is the spin-off considered a partial plan termination and should the spun-off participants become fully vested in their accrued benefits?? Thank you.

[Effen]

Do you mean "multi" or "multiple" employer plan?

A multi-employer plan is a collectively bargained plan and when an employer leaves it could generate a withdrawal liability. ie: Ironworkers, bricklayers, steamfitters, teamsters, etc..

If it is a "multiple-employer" there is usually a contract or document that details what happens when an employer leaves.

These can be very complex issues, where a good attorney is generally required.

Also, I think 403b's are only available to non-profits.

So maybe you have a multiple employer plan comprised of non-profit entities?

I think we need some more info to properly understand your question.

[dmb]

I apologize for the lack of details. It is a multiple employer plan for a non-profit client and we have advised them to keep legal counsel regarding the spin-off. I will check to see if there is anything that covers an employer leaving. Thanks for the response.

[Effen]

I am fairly certain that the spin-off (assuming it is really a spin-off) does not trigger full vesting, but I don't have a reference.

[dmb]

Thanks again. We're also still looking into the details of the spin off. We did however realize that the regs say that the affected participants of a partial plan term be 100% vested to the amount funded. If the plan is underfunded on a plan term basis the 100% vesting may not apply. But like i said we're looking at all the details of the spin off. Thanks again.

[JDuns]

If the spun individuals do not lose their job in connection with the spin, it is possible to split the plan into two plans without accelerating vesting for either group.

Sorry I don't have the time to pull out the cite.

[E as in ERISA]

A merger or spin-off of a plan doesn't in and of itself require vesting, because those are just combinations or divisions of plans that then continue in existence. But you have to use your words carefully. If you do something more than pure merger or spin, you may have vesting issues. And it sounds like you have something more than that. A termination of something? If you terminate a plan after it spins off, then you would have vesting issues.

[david rigby]

Terminology is important. The original post mentioned a spinoff of a company, not a plan. Spinning off a plan may avoid such issues as a partial termination. Not a certainty, but this issue is more likely in a company spinoff.

This may be significant enough to encourage a plan spinoff first. ERISA legal advisor will be able to provide assistance.