I have a question about some plan language I have seen. The plan provides 3 year cliff for matching contributions based on "Years of Participation". Years of Participation are defined as, "Any Plan Year during which you both complete at least one thousand (1,000) Hours of Service and receive a match for at least six different months of the Plan Year." An employee receives matching contributions for a payroll period if he/she defers at least 3% of compensation. Eligibility is date of hire and entry date is the date is based on the date you elect to defer.
I believe that minimum vesting requirements under 411 require counting all years of service for all Plan Years in which an employee earns at least 1,000 hours of service, unless the year of service is can be excluded. The closest language I can find for this situation is Treas Reg 1.411(a)-5(b)(2), which states, "In the case of a plan utilizing computation periods, a year of service completed by an employee under a plan which requires mandatory contributions (within the meaning of section 411(c)(2)(C) and § 1.411(c)-1(c)(4)) to be made by the employee for such year, if the employee does not participate for such year solely because of his failure to make all mandatory contributions to the plan for such year. If the employee contributes any part of the mandatory contributions for the year, such year may not be excluded by reason of this subparagraph." (emphasis added)
My reading of Treas Reg 1.411(a)-5(b)(2) is that a year of service for vesting cannot be excluded for any computation period in which some mandatory contributions (matching contributions in this case) are made (i.e., even if just for one payroll period), so that there may be an issue with requirement that an employee receive matching contributions for at least 6 months in the computation period (Plan Year in this case).
My question is, am I misreading Treas Reg 1.411(a)-5(b)(2), or is there some other guidance that permits the requirement stated by the plan?
