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Partial plan termination worksheet
Updated over a week ago

A partial plan termination occurs when there has been a significant reduction in the number of employees covered by the plan, as determined by IRS guidelines. If Guideline believes you might have a partial plan termination for a plan year, we will notify you and provide a “Partial Plan Termination” report in your Resource Library. That report will provide the data from our records that can be used to complete lines 1 and 6 of the chart below. The numbers at lines 2-4 are based on facts and circumstances and need to be completed by you, as the plan sponsor.

This partial plan termination worksheet will walk you through the steps to help you determine if there is a presumption of a partial plan termination.

1

Total number of participants who terminated in the applicable plan year (or potentially longer period*); Note: This number should equal rows 2-4

2

Enter the number of voluntary terminations unrelated to corporate events (such as retirement, death, disability, or finding a new job) or involuntary termination for cause

3

Enter the number of seasonal/short-term employee terminations where the position is expected to be filled again next year/season

4

Enter the number of involuntary terminations due to company downsizing, layoff, or reduction in force or voluntary termination due to a constructive discharge**

5

Enter the total participating employees at the start of the applicable plan year and the employees who became participants during the plan year (or potentially longer period*)

6

Divide line 4 by line 5

If line 6 is at least 20% (or 0.20), there is a presumption of a partial plan termination. This means that all participants who terminated during 2022 should likely be 100% vested in all their employer contributions, including matching contributions.

If line 6 is less than 20% (or 0.20), it is likely that the plan did not incur a partial plan termination.

No matter which result, you may want to consult an ERISA attorney who can inquire into your specific circumstances and make a legal determination. Please note that as a fiduciary, your cooperation is vital to ensure your plan is operated in compliance with plan rules and regulatory requirements. Failure to meet your fiduciary duties can result in penalties and adverse tax consequences for your plan.

If you determine that your plan has not experienced a partial plan termination, no action is needed.

If you determine that your plan has experienced a partial plan termination, please contact clients@guideline.com. If your partial plan termination occurred over a period longer than the prior plan year, please also let us know.

What happens if we incurred a partial plan termination?

If it is determined that a partial plan termination occurred, the following will apply to your plan:

  • We'll 100% immediately vest all participants who terminated employment in the applicable year.

  • If any of these participants have already taken a full distribution of their account, we’ll restore the funds previously forfeited to make their account balance whole. These funds will come from the plan’s forfeiture account. These participants can then request a distribution at any time.

  • If the plan’s forfeiture account balance is insufficient, we’ll withdraw funds from your company bank account to restore terminated participant accounts.



*There are at least 2 potential scenarios that could lead to a longer period being considered:

  1. If the plan terminates before December 31, then include the prior plan year, plus the short, final plan year. For example, if a plan terminates June 2, 2024, the period to measure is January 1, 2023 to June 2, 2024.

  2. If there were a series of related layoffs that take place over more than a plan year. Please note, however, that special rules applied during the COVID pandemic. For a plan year that included the period beginning on March 13, 2020, and ending on March 31, 2021, a partial termination would not apply if the number of active participants covered by the plan on March 31, 2021, was at least 80% of the number of active participants covered by the plan on March 13, 2020. This rule did not require that the same employees be rehired, it simply looked at the number of active participants at the beginning and end of the plan years.

**Constructive discharge: According to the IRS, in some cases, employees who appear to terminate employment voluntarily have been found to have actually terminated involuntarily due to what’s called a “constructive discharge.” The employer's intent, working conditions, and the reasonably foreseeable impact of the employer's conduct on the employees are factors into evaluating this type of termination. This includes, for example, employees who found other work in anticipation of an office closure or layoff. If this has happened, those employees are counted in determining whether a partial plan termination occurred.


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