Jump to content

ESOP vesting


Recommended Posts

an attorney drafted a EGTRRA document in 2005 it was adopted and the company then amended the plan in 2007 to change the NRA and received a revised SPD. Curiously, the vesting schedule remained at 7 year graded. This plan should have been using the accelerated 6 year schedule effective 1/1/07 for new participants, correct? The plan is on a remedial cycle E and has to be submitted for determination by 1/31/11.

Link to comment
Share on other sites

Kevin, it was leveraged years ago, but no outstanding loan as of that date. So if the plan was to go 6 year, by what date should this have been adopted? 12/31/06? The last work the attorney did on the doc was in 2007. Thank you for your reply

Link to comment
Share on other sites

you may want to read the following (this is just that last part)

found at

http://rsmmcgladrey.typepad.com/esop/2007/...esting_req.html

So to summarize, you have the following decisions to be made with respect to your vesting schedule (assuming your current vesting schedule is not rapid enough):

Which vesting schedule will you use?

If you are a leveraged ESOP, do you want to delay the change in vesting schedules as allowed under the exception outlined above?

Do you want to apply the new vesting schedule to all balances or only to amounts accumulating in post – 2006 plan years?

Do you want to limit the application of the new vesting schedule to participants who have an hour of service in the first plan year beginning after December 31, 2006?

Your plan document does not need to be amended to reflect these decisions until the end of the 2009 plan year. Nevertheless, you may choose to adopt an amendment now to record the decisions made and you may also want to communicate the new vesting provisions to your employees at this time.

Link to comment
Share on other sites

What vesting schedule did they use starting in 2007? PPA Section 1107 gives the amendment deadline of the last day of the 2009 plan year, but requires that the plan operate as if the amendment was already in effect.

Link to comment
Share on other sites

What vesting schedule did they use starting in 2007? PPA Section 1107 gives the amendment deadline of the last day of the 2009 plan year, but requires that the plan operate as if the amendment was already in effect.

Thats the problem Kevin. The plan has been operating under a 7 year schedule for 2007 and 2008. They did not amend by 2009. Is this a SC filing issue?

Link to comment
Share on other sites

You may be able to self correct the operational failure from using the 7 year vesting schedule post 2006. If the failure is insignificant in aggregate, you should be able to self correct that part. If not, the two year correction period may have lapsed on part of the failure, so you would be looking at VCP.

Unless the plan is collectively bargained, the lack of a PPA vesting amendment by the end of the 2009 year is a plan document failure, which means VCP. I'm not sure you actually had until the end of the 2009 PY to amend, but the amendment would still be late even if you qualifed for the 2009 deadline.

Link to comment
Share on other sites

You may be able to self correct the operational failure from using the 7 year vesting schedule post 2006. If the failure is insignificant in aggregate, you should be able to self correct that part. If not, the two year correction period may have lapsed on part of the failure, so you would be looking at VCP.

Unless the plan is collectively bargained, the lack of a PPA vesting amendment by the end of the 2009 year is a plan document failure, which means VCP. I'm not sure you actually had until the end of the 2009 PY to amend, but the amendment would still be late even if you qualifed for the 2009 deadline.

Thanks.

its not collectively bargained. about 78 participants. The problem is that forfeitures/shares are reallocated and that kinda throws everything off, as now the active participants have too many shares and the post 2006 terminated who were paid out, were paid short.

Link to comment
Share on other sites

Rev. Proc. 2008-50 has a reallocation correction method that you'll want to look at. Basically you go back and re-do the allocations like they should have been done. If someone no longer has a balance on the correction date and was paid more than their corrected balance, the employer makes up the difference. Otherwise, you take away the incorrect allocations and then allocate the correct amounts.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...