Termination

[msmith55]

Hi,

I terminated service in 2/2012 and I received notice that my previous 401(k) plan was merging with another company's 401(k) plan (Company B). When I left my pervious employer I was 75% vested.

After the transfer occurred, I received a distribution statement. I was informed that 25% of my account balance was forfeited upon the transfer.

Can the company take away my non-vested account balance prior to 5 years?

What happens if I join Company B tomorrow, wouldn't they have to count my service with my prior company since it hasn't been 5 years break in service?

Thanks

[ETA Consulting LLC]

Typically not. There must be a forfeiture event; a 5 year break or a cash-out distribution.

Good Luck!

[ESOP Guy]

What happens if I join Company B tomorrow, wouldn't they have to count my service with my prior company since it hasn't been 5 years break in service?

The answer to that question would be "it depends".

There are a lot of factors that go into that one. Why the merger happened? If the company was purchased was it a stock purchase or an asset purchase? What does the new plan document say?

I wouldn't worry about it until or if you go to work with the new company. If that happens I would raise your questions with the HR people and make sure they go to the experts (most likely an outside third party administration firm) to get the answer as the answer will depend on a number of factors.

You can forfeit someone before the 5 years is up. It is just if you go back to work for the company (and does that company still exists?) before the 5 year break happens they would have to restore your account. That assumes you didn't take a distribution which sounds like you have not do that.

So if you go to work for company B you might want to ask about being restored but I would not hold my breath on that one.

[Kevin C]

414(a)(1) says that if an Employer maintains the plan of a predecessor employer, service with that predecessor employer is treated as service with the Employer. Several years ago, I asked one of the ERISA attorneys with our document provider if the corresponding plan provision applied when a plan was merged into the plan of an unrelated employer after an asset purchase and his answer was that yes, it applies and service under the plan that was merged in continues to count under the receiving plan. I tried looking for a cite, but it appears that the IRS has not clarified what is considered to be maintaining the plan of a predecessor employer for purposes of 414(a)(1). The term is defined for purposes of section 415 in 1.415(f)-1© as including maintaining balances of participants that were merged in from another plan.

As mentioned, the terms of the plan will determine when the non-vested portion of your balance will forfeit. As a participant, you have the right to request a copy of all or any part of the document, although they can charge you a copying charge.