Reallocation of Forfeitures after merging of DC plan into DB plan

[YankeeFan]

Relevant Background Information

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An employer maintains a defined benefit plan and a defined contribution plan both having plan years ending Febuary 28th. The defined contribution plan is merged into the defined benefit plan as of Febuary 28, 2005. As of Febuary 28, 2005, all participants in the defined contribution plan are 100% vested with the exception of one participant that is partially vested. The partially vested participant terminated in a prior year but has yet to be fully paid out and has not incurred 5 consecutive breaks in service. The defined contribution plan allows for the reallocation of forfeitures upon the earlier of (a) the distribution of the entire vested portion of the participant's account or (b) the last day of the plan year in which the participant incurs 5

consecutive breaks in service.

Specific Questions

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Once the plans merged on February 28, 2005, what should have happened to the unvested portion of the partially vested participant's account?

Must the unvested portion be reallocated as of February 28, 2005 based upon the profit sharing plan's allocation formula although the participant has not been fully paid out or incurred 5 consecutive breaks in service?

Conversely, can the unvested portion be used to reduce future contribution in the defined benefit plan? As such, under this scenario, it is not reallocated to participant's accounts.

[david rigby]

Some may say that you cannot merge a DC plan into a DB plan (or vice versa). I believe that is a misreading of IRC 414. However, it does appear that to do so, you must first treat the disappearing plan as if it were being terminated (and my statement may be an oversimplification). Thus, you have to vest the participant.

If there is also a forfeiture account waiting for allocation, then allocate it .

On a practical level, with only one affected participant, it seems the sponsor would gladly opt for the simplest approach.

Other comments?

[rcline46]

I don't have a problem with merging the PSP into the DB plan. However since all contributions have now ceased for the PSP, the IRS treats it as a terminated plan, therefore 100% vesting of all participants. That is what you get for not having the person paid out already.