Member leaves CG--(partial) plan term?

One company in a CG got sold.  The new ER does not have a plan, nor does it want one.

What happens to the folks in the old ER who were in the plan?

Numbers-wise, this is not a partial plan term--6 participants out of about 85.

So, do these people have to be 100% vested?

I would think not, but just want to make sure.

The PPT rules are facts and circumstances with the presumption of a PPT if more than 20% reduction. If sponsor deems they did not have a PPT then normal 5500 reporting won't trigger any presumptive PPT flag for such. However, the plan sponsor could deem this a PPT as it was their action that initiated termination for an entire business unit (CG/sub company). 

There may not be a legal requirement but it might be the right thing to do, especially since those employees are going from having a plan to no plan.

Another option that I've seen, continue to count their service with the new owner for vesting on accounts in the seller's plan, provided they leave their accounts in until fully vested. So if 40% vested with 3 YoVS at time of sale, if person stays with buyer for 3 more years and leaves account with seller's plan, they then become fully vested and can take full distribution and roll over if desired. This should not be very difficult to track for 6 people.

My take on this is that it probably is a PPT.  The reason being, that while 6 our of 85 is below the IRS' *rule of thumb* of 20%, it is, in fact, 100% of the employees for the *company sold.*  I've seen the IRS apply the total number of employees in the company/division/office sold/transferred/shut down as the denominator for purposes of determining  whether the PPT occurred (which, unless some of those ee's are transferred elsewhere within the original employing organization) often exceeds the rule of thumb 20%.

And I agree - it's probably the right thing to do anyway.  I wouldn't recommend continuing to vest these people based on service with the buyer - requires an ongoing close relationship that most companies don't want to get involved with.

I would say no. IRS says to look at all participating employees in the plan, not just those in the divested controlled group member. See the table in  https://www.irs.gov/retirement-plans/partial-termination-of-plan#:~:text=The presumption of a partial,there was no partial termination.

Also, crediting vesting service with the buyer (after termination of employment) needs to meet the nondiscrimination rules in 1.401(a)(4)-11(d)(3). 

If the buyer did not negotiate for that in the purchase agreement, then it's possible the buyer may inherit a bunch of employees who will start off with a bad taste in their mouth. In some cases, to avoid receiving "damaged goods", I have seen some buyers demand that the seller continue to grant vesting service credit post-transaction for a period of years (or vest everyone 100%) in the purchase agreement, but not always.  However, if the seller didn't agree to that, it's up to them as to whether to do so for their former employees. 

On 4/15/2022 at 3:05 PM, bito'money said:

I have seen some buyers demand that the seller continue to grant vesting service credit post-transaction for a period of years (or vest everyone 100%) in the purchase agreement, but not always.

is that backward?  How could the seller grant service with someone else?  If I sold my business you you and you took the employees, how could I grant service while they are working with you...

BG5150, Yes, the seller can do. See the regulation I quoted above, which addresses the rules for crediting imputed service (and says this could be a legitimate business reason for crediting service with another employer).  It's a bit of a pain to deal with because it requires some post-close administrative coordination between buyer and seller, but it's allowed, and if the buyer is willing to provide the data, those newly acquired employees may be more satisfied with their benefits than if they forfeited their employer money under the seller's plan.  

I see now.  Thx for the clarification