treatment of terminations within a year of the "termination date"

[Guest nrnahat]

Generally, employees who terminate within a year of the "termination date" of a plan being terminated are entitled to be fully vested in their benefits for termination purposes.

But how about employees who were terminated within a year of the termination date but were only partially vested or not vested at all--do they have entitlements? what are they? Thanks....

[flosfur]

As written, doesn't your first paragraph answer your question in the second para?

In the second paragrapgh, do you mean if partially vested terminees were paid out and there were 0% vested terminees - who terminated within one year of plan term?

Plan document would address this in the Plan Termination section. Generally, what I have seen is that terminees who have been paid their vested benefits are not entitled to any additional benefits on plan termination and 0% vested terminees are deemed to have been paid out.

[david rigby]

Generally, employees who terminate within a year of the "termination date" of a plan being terminated are entitled to be fully vested in their benefits for termination purposes.

I disagree, if "within a year" means 12 months. If this means "during the plan year of termination", then the statement is better (maybe not perfect, but better).

[Guest nrnahat]

Thank you all for your input. It is appreciated.

IRS has said that qualified plans may not allow a forfeiture simply because an employee separates from service (where the employee has not received payment of his nonvested accrued benefit).

An employee who separates from service won't forfeit his nonvested accrued benefit until he incurs a one-year break in service. Thus, an employee must become vested in his accrued benefit, to the extent funded, if the plan terminates before he incurs a break in service.

[Guest Kabert]

The IRS has issued guidance on this I think and there are, as I recall, 3 or 4 helpful cases out there (I think one has a party named Borda, IIRC). Sorry, don't have citations here at home.

[ak2ary]

Thank you all for your input. It is appreciated.

IRS has said that qualified plans may not allow a forfeiture simply because an employee separates from service (where the employee has not received payment of his nonvested accrued benefit).

An employee who separates from service won't forfeit his nonvested accrued benefit until he incurs a one-year break in service. Thus, an employee must become vested in his accrued benefit, to the extent funded, if the plan terminates before he incurs a break in service.

The IRS uses GCM 39310 as their cite for their position here. They modify 39310 (as it was a pre-REA GCM) to take into accounnt the REA change which required 5 consecutive one year breaks. At plan termination, if forfeiture has not occurred under the terms of the plan (which they claim cannot be earlier that the earlier of payout or 5 breaks) they require that the nonvested portion of the benefit that is not yet forfeitable, become fully vested.

Their interpretation is wrong, but they like it

[ak2ary]

I should add that to the extent funded may help you in a non pbgc covered plan

Also I understand that IRS has allowed the forfeitures to occur in situations where the company is out of business so there is no chance of re-hire