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counting vesting YOS


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A calendar year plan was created with a short initial plan year 7/1/15 - 12/31/15.  It had a 3 year cliff vesting schedule and the plan's vesting computation period is calendar year.  Service prior to the effective date of the plan (7/1/15) is counted.

We have an individual who was hired 1/1/15 and has 1000 hours in 2015 and 2016.  Then he terminates employment in early 2017 without 1000 hours.

So, does this participant have 2 or 3 years of vesting service?  It would appear to be only 2.  But because of the short plan year, does the participant get credit for all of 2015 and then also for the short plan year as well, giving him 2 years of vesting service as of 12/31/15?

Another question:  The plan amended to a 2/20 vesting schedule as of 7/1/17.  This was after the participant had terminated.  If the same participant was 0% vested at termination in early 2017, would he now be 20% vested due to the new vesting schedule, even though he was not employed at the time the new vesting schedule was adopted?

Thank you

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11 minutes ago, Santo Gold said:

So, does this participant have 2 or 3 years of vesting service?  It would appear to be only 2.  But because of the short plan year, does the participant get credit for all of 2015 and then also for the short plan year as well, giving him 2 years of vesting service as of 12/31/15?

I'd say the short plan year is irrelevant to the calculation.  Vesting is based on years of service.

13 minutes ago, Santo Gold said:

Another question:  The plan amended to a 2/20 vesting schedule as of 7/1/17.  This was after the participant had terminated.  If the same participant was 0% vested at termination in early 2017, would he now be 20% vested due to the new vesting schedule, even though he was not employed at the time the new vesting schedule was adopted?

The cop-out answer is to say read the document, although I'm not sure it would be addressed specifically.  I'd be inclined to apply the new schedule to everyone unless it was addressed directly in the amendment or you can otherwise find language saying not to.

Ed Snyder

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From the EOB/DC-1:

The short computation period issue arises not only when the vesting computation
period is amended but if a new plan has an initial short plan year and the vesting
computation period is defined to be the plan year. When the effective date of a new
plan is a date other than the first day of the normal plan year cycle, the plan will start
with an initial plan year of less than 12 months. However, a vesting computation period
may not be a period of less than 12 months. If the plan recognizes service before the
plan's effective date for vesting purposes, then the initial short plan year will not have
any effect, because the vesting computation period which includes the effective date of
the plan will be the 12-month period ending on the last day of the first plan year. If the
plan disregards service before the plan's effective date, the initial short plan year may
not be used as a vesting computation period. The initial short plan year will be treated
in the same way as an amendment of the vesting computation period. The first 12-
month vesting computation period will start on the effective date of the plan, and
overlap with the second plan year.

 

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2 hours ago, Santo Gold said:

Another question:  The plan amended to a 2/20 vesting schedule as of 7/1/17.  This was after the participant had terminated.  If the same participant was 0% vested at termination in early 2017, would he now be 20% vested due to the new vesting schedule, even though he was not employed at the time the new vesting schedule was adopted?

Thank you

This is where a well drafted amendment is needed.  If the people doing the amendment were good they wrote it with language that said something to the effect:

Anyone who works 1 hours on or after this date....(the amendment goes on to talk about that change). 

If it doesn't have any such limiting language my default answer is it applies to all participants.   It sounds like this person is a participant so it applies to him.  I would go back to the attorney that drafted the amendment and see if they can justify any other reading if the client doesn't like that answer.  

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One other thing you might want to look at to see if the change in the vesting schedule applies to this guy is when the plan says a person who is 0% vested forfeits. 

I have a number of plan documents that say a 0% person is deemed to have received their full distribution of their vested balance on the date of their termination.  The plan goes on to say anyone who receives a full distribution of their vested balance forfeits as of that day. 

Under those plan provisions you could make a case the person had no balance and wasn't a participant as of the day the amendment was adopted.  

I still think a well written amendment is better but you can look into when a person forfeits if needed. 

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On 6/13/2019 at 10:47 AM, ESOP Guy said:

One other thing you might want to look at to see if the change in the vesting schedule applies to this guy is when the plan says a person who is 0% vested forfeits. 

I have a number of plan documents that say a 0% person is deemed to have received their full distribution of their vested balance on the date of their termination.  The plan goes on to say anyone who receives a full distribution of their vested balance forfeits as of that day. 

Under those plan provisions you could make a case the person had no balance and wasn't a participant as of the day the amendment was adopted.  

I still think a well written amendment is better but you can look into when a person forfeits if needed. 

That's an interesting thought.  But he did have 100% vesting in his 401k and safe harbor and did not take those out.  I've seen language as you described that seemed to apply more to the participant's entire account balance, but not to just a portion of their overall account balance.

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39 minutes ago, Santo Gold said:

That's an interesting thought.  But he did have 100% vesting in his 401k and safe harbor and did not take those out.  I've seen language as you described that seemed to apply more to the participant's entire account balance, but not to just a portion of their overall account balance.

Yeah, I am thinking too much ESOPs.  It has been over 9 years since I last worked on a 401(k) plan.  

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