Vesting & Plan Termination

[metsfan026]

Good morning, I hope all is well.  I have a Cash Balance Plan that's terminating as of the end of the year.  I know upon termination everyone becomes 100% vested.  My question is, what is the rule to "forfeit" (not the right word) your benefit.  If someone has been out for 5 years, do they lose their benefit if they weren't 100% vested?  It's a 3-year cliff vesting schedule, if that matters.  I looked in the document, but I can't seem to find the wording, just want to make sure I'm right.

Thanks!

[Lou S.]

If the Plan says to forfeit on a 5 year Break In Service then forfeit them.

[Kac1214]

Doesn't document say that if you terminated with 0% vested balance, you forfeited on termination (ie, deemed to have received distribution of 0% on termination)? 

From FTW CB Document

For purposes of this Section, if the value of a Participant's vested Accrued Benefit is zero, the Participant shall be deemed to have received a
distribution of such vested Accrued Benefit.

[truphao]

also look for a "deemed cashout" language

[metsfan026]

On 11/3/2023 at 5:33 PM, Kac1214 said:

Doesn't document say that if you terminated with 0% vested balance, you forfeited on termination (ie, deemed to have received distribution of 0% on termination)? 

From FTW CB Document

For purposes of this Section, if the value of a Participant's vested Accrued Benefit is zero, the Participant shall be deemed to have received a
distribution of such vested Accrued Benefit.

I know this is in DC Plans now.  Does it also apply to DB Plans?

[metsfan026]

On 11/3/2023 at 2:34 PM, Lou S. said:

If the Plan says to forfeit on a 5 year Break In Service then forfeit them.

Here's the language in the document for the Deemed Cash Out.  So if someone hadn't been out 5 years, they are now 100% at Plan Termination correct?  I just want to make sure my thought process is correct.  Thanks!

If a Participant's vested interest in his Hypothetical Account is zero, such Participant shall be deemed to have received distribution of his entire vested interest under the Plan as of the date he incurs 5-consecutive Breaks in Service and he shall cease to be a Participant under the Plan as of such date.

[Lou S.]

That's how I would read it.

I think because of the deemed cash out provisions, folks probably should have been deemed cashed out if they terminated in prior years. Folks that terminated in the year of plan termination, I think you'd have a tougher time deeming them cashed out.

I'm not sure what the IRS position is on folks who were deemed cashed out in the 5 years proceeding the termination, if you have to restore them because they don't have a 5 year BIS, but I personally have not done that even on Plans that used to be submitted to the IRS for a DL on termination.

[Bird]

18 hours ago, Lou S. said:

I think because of the deemed cash out provisions, folks probably should have been deemed cashed out if they terminated in prior years.

But the document language that Metsfan026 cited says it happens after a 5 year break (an earlier post by Kac2014 called for immediate deemed cashouts, but it was a different document). 

I think this is a mechanical exercise - if they had a 5 year break prior to plan termination, then they are 0% vested and forfeit; otherwise they become vested upon termination. Some (many) years ago, when we submitted plans for DLs, the IRS would ask about forfeitures within 5 years of the plan termination. It wasn't ever a problem, but I think the idea was that they were looking for terminations and forfeitures that were somewhat related to the plan termination. I think I even remember them asking for evidence that someone who term'd a couple of years prior was a voluntary term (quit vs. fired). I asked "what's the difference?" I think I got a mumbled answer about it possibly being related to the plan termination, but in any event it wasn't challenged.