Partial Termination

[Guest Dwang]

My company has the 401(k)/Profit Sharing Plan which is the safe harbor plan but the profit sharing plan is subject for 5 year vesting schedule. We have recently done the lay-off that could cause of the partial termination. Question: Will the profit sharing money become fully vested due to the partial termination?

[K2retire]

The profit sharing money for only the participants effected by the partial termination would become fully vested.

[austin3515]

And generally only if you let go more than 20% of the eligible employees.

Also note that a 5 year CLIFF is no longer allowed. Not sure if this what you meant. IF your document says 5 year cliff stiill, you need to change it to 3 year cliff, and perhaps you may have under-paid some people since PPA was effective (1/1/08 or so? - not sure exactly...). Most restrictive now is 3 year cliff.

[Guest Dwang]

I will do more search about 3-year issue. Thanks so much for your comments!

[austin3515]

http://www.sgrlaw.com/resources/client_alerts/974/

From that article:

The PPA amended the minimum vesting requirements for defined contribution plans to require faster vesting of employer nonelective contributions for plan years beginning after December 31, 2006. Before the change, plans were permitted to maintain either a 5-year cliff vesting schedule or a 3- to 7-year graded vesting schedule; but under the amended Code Section 411(a), plans must provide for either a 3-year cliff vesting schedule or a 2- to 6-year graded vesting schedule.