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Weird Vesting Rule


austin3515
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"One month of vesting service is provided for any month during which an Employee is credited with at least 1 hour of service."

This seems like one of those unusual circumstances where a provision appears to be quite generous, but just does not check the boxes in the right way. This provision is neither elapsed time, nor based on a minimum number of hours in a vesting computation period.

Therefore, I don't see how this rule complies with ERISA?  Do others agree?

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Without seeing the whole of the governing document, one might only guess at how pieces of the puzzle fit (or don’t).

For example, how many months of vesting service are needed to get one year of vesting service?

Even if the plan’s provisions count neither hours nor elapsed time, might the plan’s provisions have some logic related to the equivalency provided by 29 C.F.R. § 2530.200b-3(e)(1)(iv)?

https://ecfr.federalregister.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-D/part-2530/subpart-A/section-2530.200b-3

That equivalency credits 190 hours of service for each month for which the employee would be credited with as little as one hour of service.

Perhaps the quoted provision might work if six months of vesting service is enough to get one year of vesting service?

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42 minutes ago, austin3515 said:

"One month of vesting service is provided for any month during which an Employee is credited with at least 1 hour of service."

This seems like one of those unusual circumstances where a provision appears to be quite generous, but just does not check the boxes in the right way. This provision is neither elapsed time, nor based on a minimum number of hours in a vesting computation period.

Therefore, I don't see how this rule complies with ERISA?  Do others agree?

Does it say, somewhere else, how many months of vesting service are required to vest on whatever the schedule is?

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"Vesting is determined by your years of service from your date of hire to your date of termination. You are credited with vesting for all years and months of employment. If you work an hour of service in a month, you will be credited with a complete month of service."

And then "The value of your individual account attributable to employer contributions is fully vested when you have completed 3 years of vesting service."

Not equivalencies because the doc would have referenced 1,000 hours a year requirement.  It's clearly elapsed time with the addition of the 1 hour a month requirement.  I believe this provider does government work, so I think this might be an option that was available for them to check for a non-ERISA governmental plan.  That's all I can think of.

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If the plan is ERISA-governed:

ERISA § 404 [29 U.S.C. § 1104]        Fiduciary duties

(a)   Prudent man standard of care

       (1)   {A} fiduciary shall discharge his duties with respect to a plan . . .

              . . .; and

               (D)  in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this title {I} and title IV.

Whenever the plan’s administrator must decide which portion of a participant’s benefit is nonforfeitable, the administrator might first apply the document’s provisions.  If that finds a nonforfeitable percentage less than 100%, the administrator would alternatively count vesting service and a nonforfeitable percentage under the minimum provisions ERISA §§ 201-210 require.

 

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Does it? Per 1.410(a)-7(d), elapsed time vesting service is based upon whole year periods of service. If you work 1 hour in a month, you receive credit for that month. For every 12 months of credited vesting service, you get credit for 1 year of vesting. The service spanning rules apply. How is your plan situation noncompliant? Maybe I'm missing something obvious?

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Under elapsed time if someone was hired on July 26 2021 works for a week, quits and comes back on July 1st 2022, then on July 26 2022 they have a year of service.

under this plans rules they do not which I think is a real issue.

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I agree that if your document language, somewhere, doesn't properly account for "periods of service" and the service spanning rules, that you would appear to have a problem. Is this a pre-approved document, or custom? Most of the pre-approved docs I've seen do cover this, although sometimes well hidden...

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Not preapproved I don't think.  Code 3D not used on 5500, and they filed for a determination letter.  Again I have a feeling the same template document is used for governmental plans where this would be fine.  The document is definitely written by this particular national provider, not an attorney.  I probably should clarify as of right now I have just the SPD.

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