I’ve heard that if more than 20% of employees are terminated then everybody becomes 100% vested. Is there any truth to that?

This is not an issue if a retirement plan provides only for salary deferrals and/or for plans that have all employer contributions immediately 100% vested (e.g., SH contributions or match). That said “partial plan termination” requiring 100% vesting for all impacted participants (those laid off) may be triggered when more than 20% of workforce is laid off. While relief has been requested by retirement service industry organizations, the likelihood is low.  Since the intent is to protect the interest of participant, generally IRS sides with a participant upholding the 100% vesting expectation.

Cetera Retirement Plan Specialists is a third-party administrator and may not offer tax, legal or investment advice. Plan sponsors should consult their own tax, legal or investment professionals.