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Vesting - 5 year break in service


PS

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Hi, 

one of the Terminating plans has few part who were terminated 6-10 years ago and the plan is now terminating, none of these part re-joined the company/service since they still HOLD a balance I believe they should be 100% vested correct?  

Thanks 

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What does the plan document say about when forfeitures occur?

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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1 hour ago, C. B. Zeller said:

when forfeitures occur?

That is the key. Typically, unvested balances forfeit at the earlier of distribution of vested balance or 5 consecutive one-year breaks. If you have unvested balances remaining for participants who have been gone longer than five years then you could have a compliance issue - operational defect for not following plan document that may have required forfeiting and re-allocating (or reducing ER contributions) in a specific time frame. You should make sure that is clean before terminating the plan. Then, anyone who has not forfeited unvested balances under the terms of the plan must be fully vested upon plan termination.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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On 1/31/2022 at 11:56 AM, PS said:

Hi, 

one of the Terminating plans has few part who were terminated 6-10 years ago and the plan is now terminating, none of these part re-joined the company/service since they still HOLD a balance I believe they should be 100% vested correct?  

Thanks 

No, if they have incurred at least 5 consective breaks-in-service, then they are not "affected participants" and not subject to 100% vesting.  https://www.irs.gov/retirement-plans/plan-sponsor/401k-plan-termination

Since they haven't taken their monies yet, you'll probably have troubled contacting them or getting them to quickly act; I would in conjunction with the termination notice put them on the 30-day clock to do an auto-rollover of their vested balance.   Then you can expense, re-allocate, or restore, the resultant forfeitures to the affected participants and get them paid all at once in a timely manner.  

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17 hours ago, Nate S said:

No, if they have incurred at least 5 consective breaks-in-service, then they are not "affected participants" and not subject to 100% vesting.  https://www.irs.gov/retirement-plans/plan-sponsor/401k-plan-termination

Since they haven't taken their monies yet, you'll probably have troubled contacting them or getting them to quickly act; I would in conjunction with the termination notice put them on the 30-day clock to do an auto-rollover of their vested balance.   Then you can expense, re-allocate, or restore, the resultant forfeitures to the affected participants and get them paid all at once in a timely manner.  

Thank you!

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On 1/31/2022 at 2:09 PM, CuseFan said:

That is the key. Typically, unvested balances forfeit at the earlier of distribution of vested balance or 5 consecutive one-year breaks. If you have unvested balances remaining for participants who have been gone longer than five years then you could have a compliance issue - operational defect for not following plan document that may have required forfeiting and re-allocating (or reducing ER contributions) in a specific time frame. You should make sure that is clean before terminating the plan. Then, anyone who has not forfeited unvested balances under the terms of the plan must be fully vested upon plan termination.

I don't believe there is any unvested amount the plan sponsor did not want them to be 100% vested since they had terminated 6-10 years ago, since there was a 5 consecutive one-year in break they will not be 100% vested correct. 

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2 minutes ago, PS said:

I don't believe there is any unvested amount the plan sponsor did not want them to be 100% vested since they had terminated 6-10 years ago, since there was a 5 consecutive one-year in break they will not be 100% vested correct. 

Once again you need to go back and read what people are telling you. 

You have two issues here and you need to work through both of them in order to get the correct answer.

Issue 1:  There shouldn't be a way a person who has been gone 6-10 years ago who didn't forfeit.  So study the document and figure out what SHOULD HAVE HAPPENED with those accounts and when.  You have a failure to follow the document it looks like. A decision needs to be made how you are going to correct that problem. 

Issue 2:  Once you correct issue 1 you may or may not have to worry about is these people can be forfeited or need to be made 100% vested because of the plan termination.  I can't imagine the plan will have to vest them.   But it the answer will most likely fall out from the correction of the correction of failing to follow the plan document. 

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