In a revenue ruling, the IRS further standardized a benchmark it first
proposed in 1991 for determining when a partial termination of a defined
contribution retirement plan under IRC section 411(d)(3)(A) has
occurred. The provision comes into play often when employers downsize,
as in the scenario of the ruling, 2007-43, which was released in June.
Under the statute, a termination or partial termination of a qualified
plan results in the immediate vesting of all affected employees.
Corresponding regulations provide only a facts-and-circumstances
standard for determining how many layoffs constitute a partial
termination. “So vague a regulation is no help to anyone,” said the
Seventh Circuit Court of Appeals in Matz v. Household International
Tax Reduction Investment Plan
, 94 AFTR 2d 2004-6781 (2004). The court reached back 13 years for a
benchmark in an amicus brief filed by the IRS in another case. In the
earlier case, Weil v. Retirement Plan Administrative Committee
, 67 AFTR 2d 91-1131 (2nd Circuit, 1991), the IRS said a partial
termination may be presumed to have occurred when severance turnover is
at least 20% of participating employees. In the recent revenue ruling,
the IRS applied that standard to an employer that closed one of its four
business locations, laying off 23% of its plan participants.