Who Becomes 100% Vested At Plan Termination

I have a Cash Balance Plan that is about to terminate.  The question is, which participants become 100% vested at termination?

Obviously anyone who is currently active in the Plan becomes 100%.

What about terminated, non-vested participants who have had less than a 5-year break in service (there are former employees who have anywhere from a 1-4 year break, but are not actively working)?

I think I've seen case law going both ways over the years if I remember right about who needed to be 100% vested and not. I believe the presumption is that anyone that has less than a 5 year Break in Service who has not previously been paid out as of the termination date would become 100% vested as a result of the termination but I believe that was successfully challenged in at least one case (I don't recall which one) and full vesting of former employee participants was not required. The exception I believe seemed to surround an employer who was dissolving operations in addition to the pensions plan and there was no potential for re-hire of previously terminated employees who did not yet incur a 5 year BIS.

There is some good info in this thread below from 2004 that seems to be related to your question (I think the 2015 bump in that thread is unrelated). But I can't recall if there is more recent guidance. I know there has been a lot of guidance on partial terminations but I'm not sure about full terminations.

I believe another factor is if your document has deemed cash out language in it.  That is that anyone who terminates with 0% vesting is deemed to be cashed out.  Therefore, if you have paid anyone who was partially vested, and anyone who was not vested is deemed to be paid out, you can probably get away with a 1-year look back.  

Let the ERISA attorney and the sponsor make the decision.  

Fully agree with Effen - if 0% vested terminated employees are deemed cashed out then you have a legitimate forfeiture under the terms of the plan at the time specified in the plan (usually termination of employment). These people are no longer participants as of the plan termination date, same as if someone was say 20% vested and paid out while forfeiting the unvested 80%. If the plan later terminates you do not go back and fully vest. However, be mindful of partial termination issues that could come into play before the actual termination.

If you have standard language that forfeiture occurs upon earlier of distribution of vested balance or 5 consecutive one-year breaks but without the deemed cash out provision, then I believe you would need to fully vest those non-vested terms w/o 5-year breaks. However, I would be shocked if that was the case, I can't recall the last time I saw a plan w/o the deemed cash out provision.

Great link Lou!   Imagine that - 18 years ago.    Some really knowledgeable people on that thread.   Some are gone and some remain (to quote John Lennon).