Former employee not entitled to full vesting if plan and employer terminated simultaneously.

• Author: Cvach, Gary Q.

The Sixth Circuit has upheld a Is decision that a participant who left his partially vested account balance in his former employer's profit-sharing plan after quitting his job did not become fully vested on die plan's termination, when the plan terminated and the employer went out of existence at the same time (Borda v. Hardy, Lewis, Pollard & Page, PC, 6th Cir., 1998).

The participant was 40% vested in his employer's qualified profit-sharing plan when he voluntarily resigned in 1991. The plan allowed (but did not require) the participant to withdraw the vested portion of his account when he left. The participant chose not to cash out his benefit; the nonvested portion of his account went into a suspense account and would be subject to further vesting, with credit for past services, if the participant were to be reemployed within five years. The employer dissolved effective as of the end of 1994, with the plan terminating as of the same date.

The participant notified the plan's trustees that he believed his account should be 100% vested as a result of the termination. He based his claim on Sec. 411(d)(3), which requires that a qualified plan provide that, on plan termination, "the rights of all affected employees to benefits accrued to the date of such termination ... to the extent funded as of such date, or the amounts credited to the employees' accounts, are nonforfeitable." The firm's plan included such a provision, but the trustees concluded the participant was not an "affected employee" because:

* He had voluntarily terminated his employment well before the plan termination date;

* His termination was not related to the plan's termination; and

* The plan's termination and the employer's dissolution occurred simultaneously, so it would be impossible for him to be rehired by the employer before incurring five consecutive one-year breaks in service.

Thus, the trustees decided the participant was not entitled to 100% vesting on the plan's termination. The participant sued, but the district court granted the trustees summary judgment, applying an "arbitary and capricious" standard.

Arbitrary and Capricious Was Correct Standard

The Supreme Court has held that a denial of benefits under an Employee Retirement Income Security Act of 1974 plan is to be reviewed under a nondeferential de novo standard, unless the plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the plan's...