Partial Termination

[austin3515]

As of 1/1/2012 company A has 100 eligible employees. On March 31, Company A lays off 21 eligible employees, or 21% of its work-force. Calendar year plan. The newish IRS standards suggest that we might not know if we have a partial termination until the end of the year. The Plan has a liberal eligiblity and if they hire even 2 or 3 people the %age drops below 20%, where there is a rebuttable presumption that there is NO partial termination.

So how do I process distributions between now and the end of the Plan Year? What vesting do I use? I believe no matter which way I turn I have exposure, because I literally do not know what their vesting should be. And people who get laid off have a habit of wanting to take their money out of the Plan...

Has anyone been in this situation before?

[BG5150]

Let their attorney tell you.

[david rigby]

Employees? Participants?

[austin3515]

We ran the test correctly - anyone eligible for the Plan.

[PensionPro]

Revenue Ruling 2007-43 states that "the applicable period depends on the circumstances: the applicable period is a plan year (or, in the case of a plan year that is less than 12 months, the plan year plus the immediately preceding plan year) or a longer period if there are a series of related severances from employment." So if you take the position that the applicable period is the plan year then it is premature to determine whether a partial termination occurred.

In practical terms you process the distribution according to the terms of the document. At the end of the year you make the determination and pay additional amounts or not depending on your determination. I don't know about exposure because participants were paid the right vesting. If you subsequently determine higher vesting you pay out the differential. At least that's my view.

[Belgarath]

Agree.

[austin3515]

I suppose I do see your point, but that doesn't mean I have to like it

[Belgarath]

Given that the alternative is to pay them out 100%, then have to ask for it back if it turns out not to be a PPT, I should think you'd like it a lot!

This was one of the good things about the "old style" pooled account plans where nobody got paid out until after the EOY valuation was completed. It pretty much removed this type of problem. Of course, there were lots of other problems, but we won't mention those...

[austin3515]

What I don't like is not knowing with certainty how vested someone is, and then the possibility of doing a bunch of residual distributions.

[Belgarath]

Agree, it is a PIA! Our clients usually say, "But all you have to do is push a button on a computer..."

I think if I had to take two of the top things I hear that are guaranteed to make me start grinding my teeth, that might be the tops. The second one is likely to be any conversation/e-mail that begins with, "I read an article..."

[QDROphile]

If you crave certainty, amend to vest.

[austin3515]

I would, but my client craves forfeiture dollars

[BG5150]

Distribute the (currently) vested dollars, but leave the unvested money in the accounts. later, if you have to, do the residual distribs from the accounts. If not, just "push a button on the computer" and move it to the forfeiture account where the employer can make full use of it.

basically, don't put anything into the forf account until you have to.

[austin3515]

Great idea, but that's not generally how platforms work. Also, participants will continue to see the money in their statements under your scenario. It just stinks all the way around.

[david rigby]

Since the partial termination is unknowable now, follow the plan now. Maybe the plan will get additional administrative expense later, but so what?