A large reduction in workforce by an employer can create what is called a “partial termination” for a retirement plan – including 401(k) plans and defined benefit pension plans. In most instances, if there is a 20% or more reduction in plan participation (i.e. when 20% or more employees are laid off), there will be a “partial termination” of the plan. Importantly, when a partial termination occurs, the terminated employees whose accrued benefits are not fully vested become fully vested.

For example, if a company has 10,000 employees and lays off 2,000, the company has to fully vest those 2,000 employees – even if those employees were not yet fully vested in the plan. For the sake of this example, assume that benefits in a defined benefit pension plan accrue at the rate of $1000 for each year of service. If a person has worked for two years, is 40% vested, and gets fired, they are entitled to only $800/year at retirement.  However, if there has been a “partial termination” of the pension plan (i.e. 20% or more reduction in plan participants), then they would receive the full $2000/year. This partial termination provision in the federal law that governs retirement plans (known as “ERISA”) can greatly increase a person’s retirement savings, and often at a critical time in a person’s life.

Keller Rohrback, one of America’s leading law firms helping employees or retirees with their retirement or benefit plans, is currently investigating the impact of COVID-19 layoffs on retirement plans. If you were laid off and have questions about your retirement plan, please contact us at (800) 776-6044 or covid19support@kellerrohrback.com for a no-cost consultation.

Whether you participate in a pension, a 401(k), or another kind of plan, Keller Rohrback is committed to helping you protect your retirement savings and other employment-related assets. For more information regarding Keller Rohrback’s ERISA practice, please click here.