Company X buys the assets of the Z division of Company Y. Company Y maintains a profit sharing plan for its employees. Assume that Company X is willing to accept a spinoff of the portion of the assets of the Company Y profit sharing plan attributable to the Z division employees. Company Y proposes to transfer only the vested portion of the affected participants' acccount balances. Does this result in a violation of a qualification requirement?

See IRC 411(a)(11) (I think). Balances after spinoff must be the same as before spinoff, and vesting is not mentioned.

Per 414(l) the balances under the 2 plans combined must be the same after the spinoff as before. Does that mean you can keep the non-vested portion in the transferor plan? How will that work? How will the employees less than 100% vested ever become vested in their non-vested balances?

Maybe the intent is to spin-off the accounts only of those employees who are 100% vested, or to transfer only the accounts which are 100% vested (e.g., if the plan is a 401k with separate profit sharing accounts subject to a vesting schedule). The other accounts stay in the transferor plan, if an employee takes a distribution the non-vested portion is forfeited; otherwise it is forfeited after a 5-year break.

Please don't tell us that someone had the bright idea to keep the unvested balance with the expectation of capturing forfeitures.