Vesting and sale of affiliate

A company is selling its affiliate. Currently, employees of the affiliate participate in the parent's 401(k) and Pension Plan. As of the date of sale they will no longer be plan participants. The buyer of the affiliate may or may not establish a plan to benefit the employees it acquires.  Many of the employees of the affiliate participating in the parent plan are not vested and they are claiming that given the sale they must become 100% vested. As of the date of the sale they will no longer be participants in the parent 401(k) and DB plans but I'm not aware of a rule that says pursuant to these facts, the employees of the affiliate must become 100% vested. There is no partial termination of the parent plans given the sale. 

32 minutes ago, Ananda said:

There is no partial termination of the parent plans given the sale. 

Are you sure? A significant reduction in the number of active participants, particularly when the reduction is the result of an employer-initiated action (such as the sale of a division that was participating in the plan) would tend to indicate that a partial plan termination has occurred. When there is a partial plan termination, all affected participants must become 100% vested.

There was a special rule in the Consolidated Appropriations Act passed at the end of last year that granted partial termination relief. If this employer is eligible for the relief, they may not be required to vest the affected employees.

Partial terminations are facts and circumstances, with the presumption that a 20% reduction in actives constitutes a partial termination. I don't know if the sale of an affiliate would be eligible for the relief because I think you have to come back to prior employment levels within a certain extended period (that is, you're given an extended grace period to call back employees or hire replacements and avoid a partial termination). Also, nowhere do I see that a reduction less than 20% is necessarily NOT a partial termination, and the sale or closing of an affiliate/division/location is an employer-initiated action that results in a significant number of employee terminations.

The way the relief works is that if the number of active participants on 3/31/2021 is at least 80% of the active participant count on 3/13/2020, then you do not have a partial plan termination for any plan year that falls within the 3/13/2020-3/31/2021 period. If it's a calendar year plan, that would mean that if you met the requirement on 3/31/2021, then you wouldn't have a partial plan termination in 2021, regardless of any reductions that might or might not happen later in the year. I think it's incredibly poorly thought out, and far too broad, but as written by Congress and interpreted by the IRS, that appears to be the rule.

I agree that in normal years, a reduction of less than 20% does not mean there was not a partial plan termination.

Thank-you for your responses. This is a very large multi-national company and the sale of the affiliate resulted in the termination of less than 1% of plan participants.  Since there is no partial termination I don't see how any of the employees of the affiliate can argue that they have to become 100% vested given the sale of the affiliate. They should be treated like any other employee who participates in the parent's plan and who have been terminated.  I'll be speaking next week to the attorney representing these participants but I can't figure out how she can justify 100% vesting on the date of the sale.

How much would it cost to give 100% vesting?  Usually, not much.  Take the high road, please.

May not be required, but kind of a crappy move to not do it.