VESTING ISSUE AND PLAN TERMINATION

[HarleyBabe]

HERE'S THE SITUATION: HAD A PLAN THAT TERMINATED, ACTUALLY BOUGHT OUT AND ASSETS WERE ROLLING INTO THE NEW FIRM'S PLAN. PRIOR TO THE TERMINATION, SEVERAL TERMINATED PARTICIPANTS WERE PARTIALLY DISTRIBUTED FOR ONE REASON OR THE OTHER. BEFORE FINAL PAYOUT COULD OCCUR TO THOSE PARTICIPANTS, PLAN TERMINATES AND MINUTES SAY ALL PARTICIPANTS 100% VEST (STANDARD LANGUAGE).

QUESTION IS, THOSE TERMINEES WHO BEGAN PAYOUT, DO THEY RECEIVE NOW 100% OF EVERYTHING OR THEIR REMAINING VESTED BALANCES PRE-TERMINATION, FORFEITURES THEN ALLOCATED, AND THEN ALL PARTICIPANTS 100% VESTED.

SEE 1.411(A)-7(D)(5)

IT SEEMS TO SUGGEST, YOU CAN FINISH PAYING THEM ON THE ORIGINAL VESTING SCHEDULE, I THINK. NEED AN EXPERT ANSWER. SORRY FOR THE CAPS BY THE WAY.

CLIENT DOESN'T WANT TO 100% VEST THOSE PARTICIPANTS, MY FEELING IS WHETHER YOU 100% VEST THEM OR NOT, SOMEONE IS GOING TO BE ALLOCATED THE MONEY AND THEN DISTRIBUTED SO WHAT'S THE DIFFERENCE, REALLY.

ATTORNEY SEEMS TO THINK YOU CAN PAY THEM ON THE PRIOR SCHEDULE, I'M NOT SURE WHAT I THINK.

HELP:)

[david rigby]

SORRY FOR THE CAPS BY THE WAY.

Then why not turn off the CapsLock key?

The answer to your question depends entirely on the precise wording of the amendment, and how it interacts with other plan language. It may also depend on the termination date(s) of the affected EEs. Yes, that means that some of the "partial distributions" might get 100% vesting and some others might not.

The Plan Administrator probably needs advice of experienced ERISA attorney.

[HarleyBabe]

SORRY FOR THE CAPS BY THE WAY.

Then why not turn off the CapsLock key?

The answer to your question depends entirely on the precise wording of the amendment, and how it interacts with other plan language. It may also depend on the termination date(s) of the affected EEs. Yes, that means that some of the "partial distributions" might get 100% vesting and some others might not.

The Plan Administrator probably needs advice of experienced ERISA attorney.

Well, the ERISA attorney seems to think we can go ahead and payout out on the partially vested amounts. All term dates are prior to the amendment terminating the plan and 100% vesting.

[david rigby]

All term dates are prior to the amendment terminating the plan and 100% vesting.

If the EE terminated employment during the plan year in which the plan termination is effective, you may get a different result. Check the plan document carefully.

[mbozek]

Reg 1.411(d)-2(a)(1) states that upon termination of a plan the rights of each affected employee to benefits accrued to the date of termination or rights to amounts credited to his account at termination are non forfeitable.

So the question is what is the amount in the participants' account balance/accrued benefit on the date of termination as defined under the terms of the plan?

In order words when participants recieved a partial distribution were any benefits forfeited or were they suspended and would be restored if distributed benefits were paid back with a period of time in the future?

The allocation of amounts in a forfeiture or suspense account after plan termination is determined under the terms of the plan. Some plans provide for reversion to the employer, some provde that excess assets are to be used to pay for plan termination expenses and some provide for reallocation among the participants.

If you have an attorney why are you asking this board for an answer without the knowledge of what is in the plan documents that will determine the resolution of this question?

Also have you looked at the IRS audit guide lines for termination of qualified plans?

[Trekker]

We have always followed the rule of thumb that if the account is in the plan at any time during the year of termination, it is fully vested.