Should a terminated participant terminated before changing vesting sch

[Guest Rob Morgan]

If a plan was using a non top heavy schedule and participants were terminated before changing to a more favorable top heavy schedule should they be vested based on the new vesting schedule? They still have balances and therefore would still be considered partipants for the 5500. My thinking is that they should be able to based on the new vesting schedule. Or is their vesting frozen at the date of termination? Please referrence the code section if possible.

[david rigby]

Vesting is defined in IRC section 411.

Top Heavy is in IRC section 416.

As I understand your question, the EEs who have severed employment will use the vesting schedule in effect at the date of severance, unless the plan is later amended with a more generous schedule AND the amendment is retroactive to before the severance date. I don't think top heavy has any relevance to this issue unless the change in vesting schedule is automatic due to the plan becoming top heavy.

As many users of these message boards often advise, check the provisions of the plan document.