Partial Plan Termination

Client has a profit sharing plan (non-401k).  He lets about 15 people go which results in over 20% of the participants being terminated.  Then two more quit within two weeks of the others being let go.  The question is about the two who voluntarily quit....are they also 100% vested or not?  I have no idea if they were encouraged to quit or not.  

I would err on the side of caution and make then 100% vested.

Unless there is something in the employee's file that said they quit voluntarily (like a resignation letter).

If you have a partial termination then everyone affected must be fully vested, and I believe that is everyone who terminated during the year. 

The reasoning:

- people who terminated before an event (mass layoff, plant closing, sale of division, etc.) may have received forewarning and left to find a new job before being directly impacted.

- people who terminated after an event may have been encouraged ("you're next") or saw writing on the wall, or thought the ship was sinking.

There's never an issue saying you have a PT and fully vesting, whereas having IRS or DOL come in a year later after seeing 5500 filing and after forfeitures have been taken and applied can be a big hassle.

Pammie57, I agree with above from BG5150 and CuseFan and will add that the IRS seems to say in soft (website) and formal (Rev. Rul.) guidance that in their view if you have a partial termination, then everyone who terminates during the year in which the partial term occurred is "affected" and should be fully vested, regardless of why they terminated. I think a lot of practitioners think that position is not supported by the law, because the rule is that folks "affected" by the partial termination should be 100% vested, and arguably someone who quits for an unrelated reason, e.g. spouse geographic job relocation, would seem not to be "affected." Below is from the IRS's website. Rev. Rul. 2007-43, which is cited, says about the same thing.

An affected employee in a partial termination is generally anyone who left employment for any reason during the plan year in which the partial termination occurred and who still has an account balance under the plan. Some plans wait until an employee has 5 consecutive 1-year breaks in service before he forfeits their nonvested account balance. For these plans, employees who left during the plan year of the partial termination and who have not had 5 consecutive 1-year breaks in service are affected employees. See IRC Section 411(d)(3) and Revenue Ruling 2007-43.