<p>PIETZSCH BONNETT & WOMACK, P.A. An Affiliate of Polese, Pietzsch, Williams & Nolan, P.A.</p><p>ATTORNEYS</p><p>2702 North Third Street, Suite 3000, Phoenix, Arizona 85004-4607 Telephone: 602-604-6200</p><p>Client Advisory</p><p>July 2007</p><p>IRS Releases Guidance on Partial Plan Terminations</p><p>The Internal Revenue Service (“IRS”) has released Revenue Ruling 2007-43, addressing accelerated vesting as a result of the “partial termination” of a retirement plan under Internal Revenue Code (“IRC”) Section 411(d)(3). Under the ruling, if plan participation is reduced by at least 20 percent, a “partial termination” of that plan is presumed to have occurred. When there is a partial termination, all of the affected participants have to be immediately vested. This ruling could be very important for companies with numerous acquisitions and merger (or sales) activity. For example, if a company has 10,000 participants in the plan and sells off a division with 2,300 employees, those 2,300 employees would immediately become vested in the plan.</p><p>Prior to the new ruling, the IRS had not articulated a clear standard for determining whether a partial termination under IRC Section 411(d)(3) had occurred. At one time, the IRS used a 20 percent “rule of thumb” in determining whether a reduction in plan participation was significant, and therefore gave rise to a partial termination. The 20 percent rule of thumb has been widely relied upon by practitioners, and has appeared prominently in a number of court cases involving partial terminations. Revenue Ruling 2007-43 confirms this rule of thumb, indicating that the IRS will presume a partial termination to have occurred if there is at least a 20 percent reduction in a plan’s active participation. The Revenue Ruling also casts some light on the mechanics of measuring the percent reduction in plan participation.</p><p>If you have any questions, please contact Mike Pietzsch, of our Benefits and Compensation Group. </p><p>© Pietzsch, Bonnett & Womack, A Professional Association. Applicability of any legal principles discussed in this report may differ substantially in specific situations. The information contained herein is for general, informational purposes, and should not be construed as specific legal advice. Readers should consult with their legal, financial, or other professional advisors concerning specific matters. Circular 230 Disclaimer: To ensure compliance with Treasury Regulations governing written tax advice, please be advised that any tax advice included in this communication, including any attachments, is not intended, and cannot be used, for the purpose of (i) avoiding any federal tax penalty or (ii) promoting, marketing, or recommending any transaction or matter to another person.</p>