Partial Termination in Merger

[Guest BWORC]

Parent acquires 2 separate corporations (A & B) in late 2007. Parent causes Corporation A's 401(k)/PSP to merge into B's 401(k)/PSP on 1/1/08.

On 1/1/09, Parent intends to merge B's Plan into Parent's Plan. in early 2009, Parent intends to terminate Corporation A's business and all of its employees.

If A's business was terminated prior to merger of B's Plan into Parent's Plan, the terminating population is large enough for it to be a partial termination. However, once B's Plan is merged into Parents, the temination of all A's employees would not be large enough to be a partial termination if the relevant Plan and date are the Parent Plan and the date of the termination of A's business.

Question:

Is this a partial termination? What's the analysis?

Parent promised when it purchased A that A's employees would be fully vested in their Plan accounts, but never did so. The TPA suggests that the amendment should relate back to the date when the A Plan merged into the B Plan, 1/1/08.

What do you think about that?

[JanetM]

IMHO if parent told A employees they were vested than they should follow through. I agree, amend effective 1/01/08 and vest all employees of A.

[Guest Sieve]

As to the promise to fully vest, I agree with JanetM, especially if the promise was publicized in a written communication--although, of course, Parent may prefer to wait for the lawsuit.

IRS can claim that a partial termination occurred over a time period that it determines, based on the facts and circumstances--like here, if there was always the knowlege and intent that A's business would be closed and all emplolyees terminated. That's why it may be wise to seek a favorable determination letter on the partial termination issue when you still have the chance to formulate and define the issues yourself.

[david rigby]

Parent promised when it purchased A that A's employees would be fully vested in their Plan accounts, but never did so.

As suggested above, review of all material (especially written) is essential to determine what was promised and/or said.

However, sometimes the word "vested" is thrown around a bit casually. During review of documents, verify whether the promise (or perhaps, the intent) was "to vest" or "to apply prior service for vesting".