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Differing opinion on Q about vesting computation period for short plan


John A

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As mwyatt pointed out in the thread started 4-09-99, the appropriate regulation is DOL Regulation 2530.203-2©. However, I disagree with mwyatt's analysis.

Here is the DOL regulation in question:

© Amendments to change the vesting computation period.

(1) A plan may be amended to change the vesting computation period to a different 12-consecutive-month period provided that as a result of such change no employee's vested percentage of the accrued benefit derived from employer contributions is less on any date after such change than such vested percentage would be in the absence of such change. A plan amendment changing the vesting computation period shall be deemed to comply with the requirements of this subparagraph if the first vesting computation period established under such amendment begins before the last day of the preceding vesting computation period and an employee who is credited with 1,000 hours of service in both the vesting computation period under the plan before the amendment and the first vesting computation period under the plan as amended is credited with 2 years of service for those vesting computation periods. For example, a plan which has been using a calendar year vesting computation period is amended to provide for a July 1-June 30 vesting computation period starting in 1977. Employees who complete more than 1,000 hours of service in both of the 12-month periods extending from January 1, 1977 to December 31, 1977 and from July 1, 1977 to June 30, 1978 are advanced two years on the plan's vesting schedule. The plan is deemed to meet the requirements of this subparagraph.

The question concerned a short plan year of 10/1/98 - 12/31/98 with the prior plan year being 10/1/97 - 9/30/98. In Journal of Pension Benefits Volume 4 Issue 3 from Spring 1997, J. Michael Pruett writes "The determination of vesting with respect to a short plan year is based on the 12-month period ending on the last day of the short plan year." I agree with J. Michael Pruett. My reasoning is that the "preceding vesting computation period" prior to the amendment changing the plan year has to be the 12 month period (10/1/97 - 9/30/98 in the example being questioned) ending prior to the short plan year. The "first vesting computation period established under such amendment" then "begins before the last day of the preceding vesting computation period." So the "first vesting computation period established under such amendment" should be 1/1/98 - 12/31/98. I could possibly see an argument that either method is acceptable (that is, either A) vesting computation periods of 10/1/97-9/30/98,1/1/98-12/31/98, and 1/1/99-12/31/99, or b) vesting computation periods of 10/1/97-9/30/98,10/1/98-9/30/99, and 1/1/99-12/31/99). Since the regulation above does not even mention changing the plan year, only changing the "vesting computation period to a different 12-consecutive month period", it would seem to be possible under the above regulation to keep using 10/1-9/30 for as many years after the change in plan year as you would like and to change to any different period provided credit is given for overlapping periods. Is anyone aware of additional guidance that would tie the above regulation to a change in plan year?

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John, I would appreciate it if you would post this message as a reply to the original thread. I'm not competent enough to understand without seeing (or at least referencing) the entire discussion.

Thanks

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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pax, I did post the message as a reply to the original thread under this message board, as you requested. I appreciate your interest in the topic. I also started a new thread titled "Any requirement to change vesting period when plan year changes" because I think that has become the issue for me. If a change in vesting computation period is not required when the plan year is changed, then the whole discussion about which overlapping vesting computation periods are required is moot. It would appear to me that, IF the plan sponsor wants to change the vesting computation period, the sponsor may choose whatever overlapping 12-consecutive month periods are desired. Thanks again.

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