vesting and death benefit

[pmacduff]

Straight vanilla profit sharing plan - adoption agreement vesting section calls for "participant" to become fully vested upon death or total and permanent disability (no distinction for active or termed participants).

Participant left Company in 2009 and was 40% vested in the ER PS portion of his account at that time. Has not yet taken distribution. Participant passes away. Beneficiary is entitled to 40% portion or does participant account vest 100% now that he is deceased?

[TPAMan]

The plan documents we work with stipulate 100% vesting at death prior to normal retirement age or termination of employment.

If your document simply says 100% vesting at death, then you should probably to that.

[ESOP Guy]

This is a document question. As a general rule I find most documents say you have to terminate because of death in order to become 100% vested.

But look carefully at how the plan reads.

[chc93]

Or... what I've seen is... 100% vesting on death or disability while employed.

[My 2 cents]

So, as is usually the case, the mantra is "What does the plan say?"

In my opinion, a well-written plan would lock in the participant's vested percentage at the time they separate from service and no subsequent events would cause the vested percentage to increase (unless a partial or complete termination of the plan occurred close enough to the separation from service to apply, say prior to the completion of a year's break in service). If someone terminates with 40% vesting and then, a few years later, dies or the plan terminates, the 40% should stick (especially if the separation from service was not directly connected to the death or plan termination).

[mbozek]

If the plan document defines a participant as any employee who has an account balance then the participant is 100% vested at death. If you follow the rules of construction any ambiguity in the document is construed against the drafter of the plan who will be the employer.

[John Feldt ERPA CPC QPA]

Seems unlikely that a document would truly allow full vesting. Suppose the employee terminated 3 decades ago, was 40% vested at that time, and dies now or reached normal retirement age now. Does the plan say anything about when forfeitures occur?

[pmacduff]

forfeitures occur as of the earlier of 5 breaks-in-service or distribution of account.

The plan is on a Corbel nonstandardized 401k PS document. I will pull out the actual Trust Doc to review, just had the AA handy originally.

The situation is alittle unusual in that the deceased participant is the son of the owner of the Company.

While the owner would prefer to be able to vest the account 100% for the beneficiary (daughter-in-law) he just wants to follow the proper course. I believe that the 40% vesting stands but had been thinking along the lines of what mbozek said about the plan's definition of a "participant" and then in relation to the section on vesting.

thank you all for your replies.

[John Feldt ERPA CPC QPA]

Pretty sure that document's checkbox for "100% vesting upon death" only applies to employees that separate service due to death, not just to participant death. Check with Robert Richter or someone at SunGard.

[chc93]

Would the Basic Plan Document have any additional descriptions on "upon death"....

[jpod]

Assuming that the plan document(s) is(are) not clear, which would surprise me, then the answer would seem to turn on whether the non-vested portion had been forfeited (properly forfeited, that is), prior to death. If no distribution was made, but there had been a 5-year break, i would expect the document to say that the non-vested portion was forfeited. If something has been forfeited it can't be "re-vested." Conversely, if it had not yet been forfeited, then it became vested at death.

[pmacduff]

jpod - didn't think of it before but that fits in to the situation....plan states that forfeiture occurs upon the earlier of distribution or 5 breaks-in-service. This is the 5th BIS year and distribution has not yet occured. The non-vested portion would have been forfeited at the end of the 2014 PY. So to look at it another way - if the participant had not passed away those funds would be forfeited at PYE 2014 per the plan. Then say the participant passed in 2015 or beyond then, as you mention, the forfeiture dollars would not be brought back to the account to be vested simply because the participant passed away prior to payout.

[jpod]

You still need to review the plan documents and determine who gets full vesting at death: all participants or only employed participants. Like most of the other people commenting I suspect it applies only to employed participants, but you need to check.