BG5150 Posted September 25, 2020 Posted September 25, 2020 Participant left employment July 2019 and is/was 60% vested. Employer terminating the plan on November 1, 2020. If this person takes a distribution next week, will they have to be 100% vested? From the IRS website: All affected participants become fully vested in their account balances on the date of the full or partial plan termination, regardless of the plan’s vesting schedule. (emphasis added) So, the date of the Plan Termination is after the date he is taking the distribution. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
ESOP Guy Posted September 25, 2020 Posted September 25, 2020 I say this all the time a well written termination amendment will answer this question. Does the amendment discuss when a person is fully vested? If not, review the document again. Does it say exactly when a person forfeits? For example, I have some documents that says the person forfeits on the day they terminate (this is mostly for people who are 0% vested which your example isn't) , some say the day they are fully paid their vested balance and some that say on 12/31 of the year they are fully paid. In your example if the plan say forfeits the day they terminate would result in a much different that day fully paid or 12/31. If all of that still doesn't answer the question I think the safest route is to vest but I can't cite anything. This has become one of my pet peeves. If a client tells me before hand they are going to terminate the plan I try my best to get the attorney writing the termination amendment to make this clear in that amendment as this question come up in just about all terminations for plans with vesting- or just about all plans.
BG5150 Posted September 25, 2020 Author Posted September 25, 2020 This is from the Datair Plan Term Package participant notice: Quote This Notice is to inform you that ABC Corp. 401K Profit Sharing Plan (the "Plan") is hereby terminated, effective November 1, 2020, and ABC Corp. will begin the process of closing all accounts under the Plan. As the result of this termination: - you will immediately become 100% vested in your account balance. - we will distribute your account according to the terms of the Plan and federal regulations. - all participant activity in the Plan will cease as of November 1, 2020. This is the last day for contributions and loan repayments. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
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