Can a plan be terminated?
Although pension plans must be established with the intention of being continued indefinitely, employers may terminate plans. If a plan terminates or becomes insolvent, ERISA provides participants some protection. In a tax-qualified plan, a participant’s accrued benefit must become 100 percent vested immediately upon plan termination, to the extent then funded. If a partial termination occurs in such a plan, for example, if an employer closes a particular plant or division that results in the termination of employment of a substantial portion of plan participants, immediate 100 percent vesting, to the extent funded, also is required for affected employees.
Although pension plans must be established with the intention of being continued indefinitely, employers may terminate plans. If a plan terminates or becomes insolvent, ERISA provides participants some protection. In a tax-qualified plan, a participant’s accrued benefit must become 100 percent vested immediately upon plan termination, to the extent then funded. If a partial termination occurs in such a plan, for example, if an employer closes a particular plant or division that results in the termination of employment of a substantial portion of plan participants, immediate 100 percent vesting, to the extent funded, also is required for affected employees.
