Forfeitures and plan termination

[Cynchbeast]

We have a plan that will be terminating and has about 10 terminated participants with remaining balances.  A few of these have been gone so long their unvested money has already been forfeited.

What happens to these participants upon PLAN termination?  Do they become fully vested and get their forfeitures back in their accounts?  Recognize that these forfeitures have already been allocated to other participants.

[K2]

Assuming you followed the normal rules for forfeiting (i.e. 5 year break), then the answer is no, forfeitures do not have to be restored.

[CuseFan]

Correct, the only terminated people you must fully vest are those that are partially vested (haven't been paid out/forfeited) and have less than 5 years break-in-service. Good plan design will also deem any zero percent vested participants deemed cashed out (and forfeited) upon termination of employment, and you don't need to vest them either.

[Cynchbeast]

Thank you all - you have answered case where participant has 5 yr break and so forfeits unvested money.  But what about the participant who say terminated in 2014 with 40% vesting, and was paid out in 2015 and so his 60% forfeitures were allocated with the 2016 contribution?  Or perhaps the person who just last year was paid out and we haven't allocated the forfeitures yet.

Is it tough luck, he was already paid out?  Or does the sponsor have to come up with the forfeitures he would now have vesting to had he not been paid out?

[Bird]

IMO someone who was paid out needs no further action.  Having said that, when we used to file Form 5300 upon termination, there was a question about forfeitures in the last 5 years.  There usually would be one or two, and it wouldn't be a problem, but I asked a reviewer about it once and was told they were looking for evidence that those prior payouts/forfeitures were somehow related to the termination of the plan - i.e. that perhaps an effective partial termination had taken place prior to the official plan termination.  If the participants voluntarily left (quit) then it was "ok."  If the plan sponsor fired or laid off a bunch of people then they would want to look at it more closely.  I never had that situation so I don't know if they apply a (the) mathematical formula or just go with their gut.  Long story short, if the terms quit, I wouldn't worry too much (unless "quit" was because they had no choice).  At some level you have to ask "what are they gonna do about it 3 years later...?"