Partial Plan Termination?

[PFranckowiak]

I need some thoughts on making a Partial Plan Termination Determination.

I have a plan that had two divisions. A and B. B was sold in August.

There were 25 total employees for the year. (Including 2 new participants in A -3 month serv req)

3 participants voluntarily left A before B was sold and had nothing to do with B.

2 voluntarily quit B prior to knowledge of sale of B Feb,Mar

6 voluntarily quit B after knowledge of sale even though they were guaranteed a job with the new employer. (Had six months notice and were told that their jobs would continue with the new Employer)

2 participants stayed to the end and then the new company took over their employmentl upon completion of the sale.

Partial Plan Termination?

Who would vest 100%?

Thanks

Pat

[JanetM]

This is always facts and circumstances with 20% as the general rule that marks partial term. In your case you didn't involunarily term anyone based on fact pattern given. To count the number affected participants you look only at involuntary terms not voluntary. Since I don't see that you have partial termination, what is impact if you do vest those who stuck it out past he announced sale date?

In all our plans, when plant closure is announced we also mention that those who stay until layoff are 100% and anyone who leaves before then is deemed voluntary and not vested.

[Guest Sieve]

Be careful, because under the new Rev. Rul. on partial terminations, ALL employee terminations of employment (even those that are voluntary without cause) are deemed to be terminations resulting from the actions of the employer unless the employer can show otherwise. In the past, that was easy to do--just list the reasons for the employee terminations. I don't know whether or not that has become more difficult now that there's some additional IRS guidance. Certainly, making your case on a proactive basis as part of a favorable determination letter request--rather than waiting until you have to make a reactive case under IRS audit--might make some sense. And it also will provide certainty.

Janet -- What are you suggsting about "vesting" those who stay until plan closure and not vesting those who leave early? Do you mean that you're saying to employees that if you stay until we lay you off, the layoff is involuntary & therefore you are part of a partial termination and will be 100% vested? If there's a partial termination, then that's ok, but, if there turns out NOT to be a partial termination because of the numbers who leave voluntarily beforehand, then how can you fully vest contrary to the graduated vesting schedule in the plan?

[JanetM]

Larry, all our plant closures involved DB plans not DC. Plant closure can be 2 to 3 year process and it can be partial or complete. The rev ruling just added a new form to HR files. It is termination letter. Form letter that you can check the box of why you are leaving or write in reason - there is voluntary and involuntary. These are used to show who left and who left for cause. We figure if you show IRS agent stack of letters that are signed by participant and HR rep that clearly say the person is leaving voluntarily for more pay, better hours, closer to home, relocating spouse........ we have made out case.

For those who terminate due to death, we keep copy of death cert or obit with the form - then we vest them.

[Guest Sieve]

Janet -- My "be careful" comment was really directed to the OP, and not to you. But, I do like your approach to determining employment terminations--you can see I've not been involved in plant closings (other than by not watering them when they droop). Do you get any push-back from those who are terminated for cause but refuse to admit as much in writing due to potential litigation?

I still don't understand your vesting comment, though, except in the context I've explained it.

[PFranckowiak]

I just talked with the employer. They have no back up - no signed statements that those other participants left voluntarily. So since they have no back up to make that determination is their a downside to 100% vesting them?

Plan is 401(k) and has a matching formula and the forfeitures reduce the match.

Thanks

Pat

[Guest Sieve]

I see a plan document issue (on what basis is full vesting is permitted) and an operational issue (is there a partial termination--if not, is vesting discriminatory in operation).

If forfeitures are used to reduce the match, then it's only the employer who is hurt if terminated employees become fully vested. In any event, the plan doc. would have to permit 100% vesting in order for some employees to become fully vested at their termination of employment. Otherwise, on what basis do these people become fully vested, if not because of retirement, or death, or some other event indicated in the document (such as partial termination)? And if, in fact, there was no partial termination, then there'd be no basis in the document for full vesting. That's why I'd obtain an IRS favorable determination letter with regard to the partial termination issue (unless it's obvious). And, if not a partial termination, plan document language fully vesting certain terminated employees could be discriminatory in operation (if the terminating group of employees includes any HCEs and if the plan is amended to permit full vesting as a result of this event).

[JanetM]

Pat, I have never seen an IRS or DOL examiner question 100% vesting for partial termination when the group being vested and benefiting was mostly NHCE.