Vesting and sale of business

[Guest JPIngold]

I have a plan that is sponsored by a company that has just sold its assets to another company. The employer intends to make a contribution for the short 2013 plan year and then terminate the plan. There are some employee-participants who terminated BEFORE the sale who are not fully vested and are looking for distributions ... before the final contribution (which will not be shared in by the terminated participants) is made.

As I read the regulations, everyone (including former employees) must be fully vested upon plan termination. In a 1998 6th Circuit case, the court held that a participant who was terminated before the dissolution of a plan sponsor was not an affected employee and full vesting was not required.

Just wondering if people out there are using this ruling as a guideline or if it would be more prudent to vest everyone in the plan now that the employer has sold its assets.

My personal thought is that it makes logical sense that the former employees would not vest because the sale of the company had no impact on the fact the employee would not have vested ... his termination took care of that ,,, well before the sale. I just wish I had been told they were in negotiations as I would have urged them to get all of the affected former employees paid out!!!

Thanks.

James

[BG5150]

I don't have a direct answer, but however it turns out, just make sure the people who have been gone 5+ years do not get accelerated vesting.

More accurately, review the plan document for the forfeiture rules for terminated participants (when their non-vested monies get forfeited), and make sure the people who have been gone awhile rightfully forfeit their piece if applicable.

[Guest JPIngold]

Yes, definitely watching the forfeiture issue. The impacted employees all just left earlier this year, so no one is near the 5 year break.

The plan has the earlier of 5-year break or distribution rule for forfeitures.

Thanks!

James

[Kevin C]

You'll also want to look at the plan language for what happens when the plan terminates. I've seen some documents that say everyone becomes fully vested and others that say those affected become fully vested.

You should also look at GCM 39310.

http://www.legalbitstream.com/scripts/isyswebext.dll?op=get&uri=/isysquery/irl6139/1/doc

[david rigby]

Don't overlook the possibility of a partial termination before the plan termination and/or due to the sale.

[Guest JPIngold]

I was just reading the document and came upon the partial termination factor. Now, reading your post, I realize that just may be what trips the vesting trigger here.