New 2002 Vesting schedule

[Guest Michael Anderson]

One of our companies has a 7 year vesting schedule and with the new changes, it will have to go to a 6 year schedule. If someone terminates (for example) in January 2002 and the plan has not been officially restated yet, are they subject to the 7 year vesting or do they get to benefit from the new 6 year? Any help would be appreciated!

[Tom Poje]

open a can of worms and....

the new vesting only applies to match and not profit sharing.

the new vesting rules only has to apply to new match $ if you so elect. (Personally I think one would be crazy to have old match operate under one schedule and new match under the new schedule)

if you restate the document with an effective date of 1/1/2002 (which I think would be the most common date) then I think you have to give such termineen the 6 year schedule. You have to operate the plan as if the change was in effect. Again, if you restate and say that the vesting applies only to new $, then it would only be the new $ that get the schedule.

[Guest beppie_stark]

Tom -

I agree with everything you say EXCEPT that a plan sponsor would be crazy to operate with two vesting schedules on match. Forfeitures in a large to mid-sized plan can be a significant source of funding.

We estimated that a single schedule would cost us up to $90K annually for 5 years. We had to deal with the communications issues anyway because we also have P/S remaining under the old schedule.

The decision must take into account a sponsor's typical employment pattern and the service history of the existing participants. In other words, what is appropriate for a company with high turnover and a lot of new hires might not be appropriate for a more stable employee base with a majority of long term employees.