With the slowing economy, many employers have or are going through downsizing operations, and as a result, have laid off significant numbers of employees. If you have a pension plan or 401(k) plan, you may have a partial plan termination. If a partial termination has occurred, then the affected employees will become immediately 100% vested in the plan, regardless of the number of years of service.
Neither the IRS Code nor ERISA provide a clear answer to whether a partial termination has occurred. Rather, the determination as to whether a partial termination has occurred must be based on all the facts and circumstances in each specific case. The IRS has issued a revenue ruling that clarifies that a participant turnover rate of at least 20% creates a presumption of a partial plan termination. However, court rulings have supported partial terminations with less than 20% turnover, and other court rulings have stated that a partial termination did not occur when turnover rates exceeded 20%. Furthermore, the reduction in participants can occur over one or more plan years and still be classified as a partial termination.
In determining whether a partial termination occurred, courts and the IRS have generally looked at the following facts and circumstances:
n Time period over which the terminations occurred
n Presence of a corporate event or a series of events
n Classification and percentage of affected employees
n Improper motivation or misconduct by the employer
If you think you may have a partial plan termination, you should consider contacting qualified legal cousel to determine if a partial termination has occurred and to plan a course of action.
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Bob leads our Firm's Employee Retirement Plan Audit Services Group and our Not-for-Profit Service Group. He has over thirty years experience in providing audit, accounting and consulting services to privately owned businesses and organizations in the construction, manufacturing, distribution, not-for-profit, service and wholesale industries. |
