Partial Plan Termination - Gov't Contractor lost bid

[AdKu]

One of my 401(k) client (plan sponsor/employer) is a gov't contractor specialized in staffing information technology and administrative fields.

From this client 2016 plan year employee census, I noticed there has been high employees turnover.

I find it difficult to determine whether this high turnover considered as a partial plan termination for the following reasons:

1. some of those employees separated from service, according to my office sales team,  either

• were  directly hired by the gov't agency sometimes later 
• or their contract ended because the plan sponsor/employer lost the bid
• or voluntarily left the plan sponsor/employer for a better position elsewhere

 

       2. whether this plan sponsor/employer that is a gov't contractor can be considered as any other staffing   agencies such as Robert Half that may or may not be under the same plan termination rule as regular employer

[CuseFan]

Partial termination is a facts and circumstances situation but is presumed if there is a 20% + reduction in active participants. If there are enough new participants so the net reduction is not 20% then should be no issue. If the employer can demonstrate that this is normal turnover and that net additions/subtractions over time are relatively stable, I also think you're OK, but IRS/DOL may ask for that demonstration. The spirit of the rule is to protect non-vested participants from losing benefits due to employer initiated actions to reduce workforce - mass layoffs, plant closures, etc. I don't think you have that here, I think it's the nature of the business, but if the dollars are large enough (forfeitures vs. full vesting) then the sponsor may want to seek legal counsel for an opinion.