A partial plan termination typically occurs because of a reduction in force resulting from an intentional decision by the plan sponsor, due to bankruptcy, insolvency, going out of business, change in ownership, or substitution of another type of retirement plan. This can also occur unintentionally, due to corporate mergers, acquisitions or other events. Many times, an employer is completely unaware that a partial termination occurred.
The IRS generally views the plan year as the period for measuring a partial termination. However, under certain facts and circumstances, a longer period may be more appropriate, such as when layoffs are due to related corporate events. In a case where your plan started late in the year or was terminated mid-year, the period would include the short plan year and the immediately preceding plan year.