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Vesting Schedules for Merged Plans


leesuh12
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Over a year ago, someone posted the below message.  There were no responses, but I am hoping to get some feedback for this exact scenario. Please let me know if you have any thoughts. 

Company A (surviving plan) acquires Company B and the plans will be merged effective 1/1/2017. For the company match, Company A (surviving plan) has a 1-5 year graded vesting schedule and Company B has a 4 year graded schedule.

Can Company B increase the existing matching vesting schedule to 100% vesting for existing participants and then be on the same vesting schedule as Company A (surviving plan) for any new matching contributions effective 1/1/2017?

Or does the merged plan need to keep the Company B employees who were eligible before 1/1/2017 on the more favorable 4 year graded vesting schedule

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1 hour ago, leesuh12 said:

Can Company B increase the existing matching vesting schedule to 100% vesting for existing participants and then be on the same vesting schedule as Company A (surviving plan) for any new matching contributions effective 1/1/2017?

Maybe it is me but my guess the reason this never got answered is because that questions is hard to understand.  Can you clarify what it is the plan wants to do? 

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Basically, if the surviving plan (A) has a less favorable vesting schedule for the match source than the surviving plan (B),  can you apply (A)'s vesting schedule to the (B) participants post merger?  Or do you have to maintain the more favorable vesting to those participants of (B) for all contributions, new and old?

This is in reference to Code §411(a)(10)(A)

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The hard part of your question is the part about the old and new contributors and I might not be helpful because there are a bunch of debates on that topic on this board:

As a practical matter I am not sure I have seen anyone who is sure they can track the old/new money vesting well enough to make it worth doing. 

 

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First, the merger will not be effective 1/1/2017 if it is only occurring now. Do you mean, 1/1/2018?

Second, under 411(a)(10, anyone with 3 years of vesting service can choose to retain old vesting schedule. Additionally, you cannot reduce any existing participant's vested percent, even as to new money. So let's assume that your merger will be effective 12/31/2017, aka 1/1/2018. So if you 100% vest the existing B participants first, they will permanently be 100% vested in old and new money. If you don't want to do that, then you could first amend the schedule to 5-year and then (I) grandfather everyone with 3 or more years of vesting service in their 4-year schedule, and (b) grandfather everyone in B with less than 3 yos in the greater of (A) their existing percentage or (B) the new schedule's %-age. E.g., a B person with 1 yos would have 25 instead of 20, until the A schedule got to 40 for him/her, and the B person with 2 yos would have 50 until at 3 yos he/she had 20 under the A schedule.

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