The Partial Termination is the plan termination you don’t see

Plan terminations require a resolution to terminate and the full vesting of employer continuation for participants. The one termination that many people don’t see is the termination without a termination.

It’s a partial termination and that is something based on facts and circumstances of each employer. While the plan doesn’t terminate, we fully vest the contributions of employees terminated as a large contraction of the employer’s business. It’s a protection for plan participants and occurs when business is bad.

A partial termination occurs if 20% of the total participants were laid off in a particular year. Partial terminations can occur in connection with the closing of a plant or a division, or as a result of general employee turnover due to adverse economic conditions or other reasons that are not within the employer’s control. Again, it’s based on facts and circumstances so if you have a seasonal business, you can argue that the 20%+ turnover is part of the normal course of your business.

The law requires all “affected employees” to be fully as of the date of a partial plan termination. Another wrinkle is that 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. So that means you and your third party administrator should determine who maybe eligible for the full vesting of contributions if you go through a large layoff.

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