Are participants who are terminated for cause in the year a partial termination occurs entitled to full vesting?

Rev. Rul. 2007-43 provides that "[i]f a partial termination occurs on account of turnover during an applicable period [generally the plan year], all participating employees who had a severance from employment during the period must be fully vested in their accrued benefits, to the extent funded on that date, or in the amounts credited to their accounts."

This makes me think yes. Thoughts?

Think "affected participants", and "facts and circumstances".
IMHO, the facts you presented are not enough to determine the answer to your question.

Thanks.

Assume that a partial termination occured in plan year 2008. Also assume that 10 participants were legitimately terminated "for cause" in 2008. Must these 10 be fully vested?

411(d)(3) provides that each "affected employee" must be fully vested upon a termination or partial termination. The regs also don't define "affected employee."

The language I cite in Rev. Rul. 2007-43 (available at http://www.taxalmanac.org/index.php/Rev._Rul._2007-43) indicates to me that all participating employees who are terminated in 2008 must be fully vested. The Rev. Rul. does not exclude employees terminated "for cause" from this requirement.

I am aware of case law that provides that employees who are terminated "for cause" do not need to be counted for purposes of determining whether a partial termination has occured (Rev. Rul. 2007-43 does not seem to follow this), but nothing on vesting.

Thanks again.

I would argue that a "for cause" termination is not employer intiated--at least if the cause is gross misconduct (as opposed to under-performance or plant close-down)--and that therefore gross misconduct "for cause" terminations do not count towards the determination of whether a partial termination has occured. As the Rev. Rul. says: "In certain situations, the employer may be able to verify that an employee's severance was not employer-initiated."

But, even so, the Rev. Rul. pretty clearly applies the full vesting rule to all those who terminate during the period of the partial termination. Under the regs, on the other hand, I would say that the "for cause" terminations are not "affected" by the partial termination--if, that is, they properly are excluded from the calculation of the partial termination percentage.

Take your pick--but I fear that the Rev. Rul. language you quote will cover all terminations during the partial termination period.

I think Sieve is right on target.

A few years ago I represented a surgeon who had two full-time employees and a profit sharing plan. The next business in the building suite where the surgeon's office asked how it was working out with the 'two part-time employees' handling his office. Out of concern, the surgeon hired a PI to surveil the comings and goings of his two employees. The result was clear time clock fraud. He fired both of them. One was 20% vested, the other 40%. That's all he had the profit sharing plan pay out to them. They then contacted the regional office of PWBA (EBSA's prior name). PWBA was adamant about the firings being a partial termination, that it would not relent and that if payout of the otherwise forfeited benefits was not made, PWBA would litigate the issue for the two former employees. PWBA did not question the allegation of time card fraud, but insisted it was a partial termination nevertheless.

This is very helpful. Thank you very much.

John - this brings up a question re jurisdiction. It is possible for an employer to file for a determination letter with the IRS to get a ruling on whether a PPT has, in fact. occurred. Termination for cause might be a mitigating factor that they would accept. In your situation, let us suppose that the IRS did make a formal determination that no PPT had taken place. What happens then? Is the DOL bound by the IRS? Do they have any "agreement?"

At a guess, the IRS ruling would stand for plan qualification purposes, and the DOL would still litigate...

It's been long enough ago, I do not remember what procedural avenues were open to us and were considered. Off the top, I don't know if the Reorganization Plan of 1978 gave this issue to just one agency or other, or if as you suggest, vesting on partial termination is for the IRS an issue of tax qualification of the plan and separately for DoL to protect the benefits interests of the employees.