Plan Term Impact on Vesting

[JAY21]

DB plan termination with a lot of participants, several which are terminated vested participants with benefits in the plan.

In anticipating the IRS submission questions and IRS policies, what are you seeing these days from the District Offices reviewing plan term submissions on whom has to be fully vested upon plan term beyond just the active participants. Is the following consistent with what others are seeing:

1. Terminated Vested Participants whom have not been paid out from the plan AND whom have less than 5 one-year break-in-service years must be 100% vested.

2. How about terminated participants that were 0% vested upon termination of employment but have less than 5 one-year break-in-service years since their termination, must they be 100% vested ? Does the plan's language about "deemed forfeitures" of these 0% vested benefits influence the IRS on this and help avoid full vesting ?

Opinions, Thoughts, Experiences are appreciated.

[Andy the Actuary]

Your point 1. Have always made efforts to get their benefits settled before termination date (not final distribution date) to avoid vesting them fully when the plan is terminated.

Your point 2. Have never seen this to be an issue with the caveat that I work with Plans that have small numbers of participants. I could see how this could come up on the IRS's review of the 5310 if reported are a large number of folks who terminated without being fully vested. You may be able to locate IRS 5310 review guidelines. No doubt such manual exists.

[jpod]

As to #2, I thought the IRS finally gave up years ago and agreed that if you had "deemed cash-out" language in the plan for participants who are 0% vested that the result would be the same as in #1.

[david rigby]

As to #2, I thought the IRS finally gave up years ago and agreed that if you had "deemed cash-out" language in the plan for participants who are 0% vested that the result would be the same as in #1.

That is my understanding.