The current economic environment continues to challenge business in maintaining an efficient operating model to stay competitive. Whether it is plant shutdowns or reducing workforces, companies are always looking for ways to get more with less in order to maximize profits.
If more than 20% of your total plan participants were laid off in a particular year, then your plan may have a partial termination. The law requires all “affected participants” to be fully vested in their account balance as of the date of a full or partial plan termination. This means that affected plan participants must become 100% vested in all employer contributions (including matching contributions) regardless of the plan’s vesting schedule. This matter often gets overlooked during the normal operation and administration of the benefit plan.
An “affected participant” 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. Some plans wait until a participant has five consecutive one-year breaks in service before the participant forfeits his or her nonvested account balance. For these plans, participants who left during the plan year of the partial termination and who have not had five consecutive one-year breaks in service are affected participants.
For more information regarding partial plan terminations, please see your Schneider Downs Representative or contact Mr. Timothy J. Hammer.
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