I’ve been reminded again of that old Mac Davis song, Texas in My Rear View Mirror, in recent discussions with clients and their other advisors regarding the impact of reductions in force and layoffs on their retirement plans. 

My fellow Lex Blogger, Michael Moore, nicely discusses the employment law aspects of this economic fallout in his post, Managing Layoffs and Reductions in Force, on his Pennsylvania Employment and Labor blog.  

Now here’s where the Mac Davis reference comes in. A partial termination of a retirement plan is perfectly clear in the rear view mirror. That is, it’s based on facts and circumstances, an expression I’ve heard on many occasions from my attorney friends over the years. There is no objective set of rules.

So what’s a plan sponsor to do? Two things come to mind:

  • Consider the partial termination rule in the context of the planning for the reduction in force and layoffs about which Mr. Moore writes.
  • Determine whether it would make sense to submit the plan to the IRS for a ruling as to whether a partial termination occurred.

If you want to get into the nitty gritty of partial terminations, here is a link to the IRS’ 401(k) Resource Guide – Plan Participants-Plan Termination.