Legal Question in Employment Law in California

Profit Sharing Question

I was searching the lawguru site for info about my profit sharing account when I came across this posting:

''It sounds like you have a ''partial termination'' here, which means if the employer terminates a substantial portion of their employees, they immediately become 100% vested.''

Above Quote taken from:

http://www.lawguru.com/cgi/bbs/mesg.cgi?i=780640822

I would like to know if this is always the case in California or if it depends on how the plan was written?

I was part of a company that had a contract with another company on which our employment was based. The contract was not renewed this year. All employees were terminated on September 30, 2003 and then hired by another company. No one was left unemployed.

At the time this happened, I was only 40% vested in my 401k Profit Sharing account. After reading your posting I am wondering if I am entitled to 100% or if I am stuck at only 40%? I contacted the company and they say that due to the way their plan was written I will only get 40%.


Asked on 11/03/03, 7:41 pm

1 Answer from Attorneys
Wayne Wisong Wayne Wisong, Attorney at Law

Re: Profit Sharing Question

Sorry it took so long to notice your question. Yes, I am the lawyer who wrote that. California is no different than anywhere else. This is a federal law known as ERISA which applies in all 50 states, but more precisely, in this case, it is section 411(d)(3) of the Internal Revenue Code, which provides that benefits under a tax-qualified retirement must become 100% vested upon the termination or partial termination of the plan. The idea behind this was a concern that employers not termimate their plans (or companies) early just to avoid vesting employees under the plan's vesting schedule. IRS' rule of thumb is 20%. If more than 20% of the workforce is discharged for any reason (including sales of assets to an unrelated entity) within a short time, the employer is required to vest those affected by the layoff.

You would need to consult a lawyer familiar with this area to determine exactly how you will force your former employer to comply with this requirement. You can e-mail me at [email protected].

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Answered on 11/11/03, 4:43 pm


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