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May 6, 2019

What is a 401(k) Partial Plan Termination?

The Internal Revenue Service defines a partial plan termination as a situation in which more than 20% of the total Plan participants are terminated in a particular year. This can be due to one event such as a plant closing or can occur over a period of time due to an economic downturn, industry event, or a similar general occurrence.

The IRS does not consider routine turnover during a year (especially in those industries with typically high turnover) to be partial plan terminations.

PARTIAL PLAN TERMINATIONS AFFECT EMPLOYEE VESTING

In the case of a partial plan termination, all employees that terminated service during the year for any reason and had an account balance with the Plan become fully vested in all employer contributions regardless of the Plans’ vesting schedule. 

For additional details refer to IRC Section 411(d) (3) and Revenue Ruling 2007-43.  It is important to review this ruling if your Company experiences turnover to ensure participant accounts are handled appropriately.

You should work with your service provider if you believe your 401(k) plan may be impacted by a Partial Plan Termination.

As the plan sponsor, when it’s time to audit your 401(k) plan, it’s vital that you hire an experienced auditor to ensure your plan is in compliance. At Anders we specialize in retirement plan audits. We have the ability to offer assistance entirely off-site with little or no distraction to your daily office routine. 

We also offer flat-fee pricing so there are no surprises on your bill when the job is complete. To get started, request a free 401(k) audit consultation below or contact the team at (314)-886-7913 to schedule an appointment.

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