In Matz v. Household International Tax Reduction Investment Plan, Nos. 14‐1683, 14‐2507 (7th Cir. 2014), the Seventh Circuit Court of Appeals (the “Court”) reviewed a claim that a defined‐contribution ERISA pension plan, in which the employer matched contributions that its employees made, was partially terminated.
In analyzing the case, the Court said that, when a pension plan is terminated, the rights of the participants in the plan vest in full, and so none of the money contributed by the employer to the individual employees’ retirement accounts is returned to the employer. Full vesting is required in the case of partial as well as total terminations. 26 U.S.C. § 411(d)(3)(A); 26 C.F.R. § 1.401‐6(b)(2). But did a partial termination occur here? The Court had previously adopted a rebuttable presumption that a 20 percent or greater reduction in plan participants is a partial termination, and that a smaller reduction is not. The Court assumes that there is a band around 20 percent. A generous band would run from 10 percent to 40 percent. Below 10 percent, the reduction in coverage should be conclusively presumed not to be a partial termination; above 40 percent, it should be conclusively presumed to be a partial termination.
The Court concluded that there was no partial termination in this case. The Court said that, even if all the participant plan terminations were deemed to constitute a single event and therefore needed to be aggregated, the percentage of participants terminated would be only 17 percent, still below the 20 percent cutoff and with no justification shown for waiving this threshold and finding that a partial termination had occurred.