Employee Plans Compliance Unit (EPCU) - Current Projects- Partial Termination/Partial Vesting
The Partial Termination/Partial Vesting project focuses on information from employers’ Form 5500 (Annual Return/Report of Employee Benefit Plan) filings which indicate that their plans have had a significant decrease in plan participants. The project will determine if the plans have experienced a partial termination and whether the plan sponsors are following the requirements of the plan document, and related law pertaining to partial terminations and if the information reported on the Form 5500 is accurate.
When a group of participants is involuntarily terminated from the plan due to employer initiated severance or a plan amendment, a partial termination occurs if the reduction of plan participants is deemed “significant”. A percentage test is used in determining what is significant. Generally, a significant reduction occurs when more than 20% of the plan’s participants are involuntarily terminated from the plan during the “applicable period” which is generally the plan year. When a partial termination occurs, section 411(d)(3) of the Code requires full and immediate vesting of all “affected” participants, including those participants who voluntarily terminated from the plan during the applicable period. (See Revenue Ruling 2007-43).
The Project Process
The EPCU will send contact letters, seeking data regarding the percentage of involuntary terminations from the plan and the circumstances which led to company downsizing and the reduction of plan participants to a selected group of Form 5500 filers. We will request an explanation or discussion of any special circumstances that may have an impact on whether a partial termination has occurred. The EPCU will evaluate the response and take appropriate action.
If You Receive A Letter
Please complete the Request for Information. You may also furnish any other documents or clarifying material that you believe will be helpful for us to review. You should make every effort to be as complete and accurate as possible in your responses and respond by the due date. If you need additional time, make sure to contact the person whose name is listed on the letter to request an extension. Failure to provide the information could result in examination of your plan.
If You Have Questions
Please feel free to call the person whose name is listed on the letter. Or you may e-mail us and we will be glad to answer any questions you have about the project and how it relates to you. Please include the “Partial Termination/Partial Vesting” in the Subject line of the message.
- Form 2848 (Instructions), Power of Attorney and Declaration of a Representative
- Letter 1562-Z, Compliance Contact Letter
- Instructions for Questions 2 on the Request for Information