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February 16, 2009

Partial termination

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Definition

Generally, the facts and circumstances in a particular case determines whether a partial termination has occurred. The facts and circumstances that are usually considered include:

  1. The exclusion ( by reason of a plan amendment or severance by the employer) of a group of employees who have previously been covered by the plan; and
  2. Plan amendments which adversely affect the rights of employees to vest in benefits under the plan.

Under a defined benefit plan, if the plan ceases or decreases future benefit accruals, a partial termination may occur  if the change results in a potential reversion to the employer, or employers.

Referring Cite

IRC § Treas Reg §1.411(d)-2(b), Rev Rul 72-439, Rev Rul 81-27

Additional Helpful Information

If a termination of a qualified plan occurs, participants affected by the partial-termination may become 100% vested in the plan

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