401k plan termination after company's divisions split?

[Guest JOEDOM1]

I belonged to a company with 2 separate divisions. Both divisions shared 1 401k profitsharing plan. The plan is one where you are 20% vested after 3 years, 40% vested after 4 years and up to 100% vested after 7 years. I am currently 20% vested.

My division recently split and formed a separate corporation with no relationship to the former company and a new similar plan was developed which continued my 20% vesting.

My Question: Since I was forced to leave my first 401 k profit sharing plan and all money was taken out of the account and transfered to the new plan, in effect, in my case, the original plan was terminated by having my account closed. Any termination of the plan, as outlined in the rules and

regulation, means I should be 100% vested instead of 20% Am I missing something here?

All responses are greatly appreciate. Thanks

[Guest Tim Howard]

There is a difference between a plan termination, partial plan termination, and a plan spinoff.

A plan termination requires full vesting. It does not sound like the plan was terminated, as the plan likely continued for the other division.

A partial plan termination might have occurred, depending on the facts and circumstances. This would require full vesting for the affected participants.

On the other hand, if the plan was split into two separate trusts to accomplish a spinoff, and participants did not lose any accrued benefits resulting from the transaction, participants could continue to earn vesting service from their original date of hire. This is often messy and complicated, as the amendments, resoultions and communication materials, plus the potentially cumbersome data issues to track can make it costly to carry over the partial vesting. The facts and circumstances of the total plan, including number of participants (vested and not), turnover, liquidity of plan assets, etc. all go into the decision process as to how to set up benefits for the new company. Sometimes it is administratively and politically easier to fully vest the participants in their "prior plan account" versus the cost of tracking vesting in a merged account.

How was the transaction communicated to participants?