Vesting service and predecessor plan

[Guest Mike Melnick]

An employer who has maintained a 403(B) pension plan (with employer non-discretionary) contributions establishes an additional 401(a) plan. Does the 401(a) plan have to recognize prior service for vesting purposes because of the 403(B) plan?

[mbozek]

IRS reg 1.411(a)-5(a)(3) provides that employer can disregard service for period prior to adoption of the qualified plan or a predecessor plan. Vesting service is required to be counted only for a qualfied plan. See Reg 1.411(a)-1(a). 403(B) plans are not qualified plans subject to the vesting rules of IRC 411 and usually provide benefits on a different basis, e.g., 100% vesting, than a qualified plan. Therefore employer can disregard service prior to year qualified plan is established.

[Guest Mike Melnick]

Thanks for your reply to my question, which was helpful. I want to add one more fact: The existing 403(B) program does have a vesting schedule on the employer contributions. (Also note that is is subject to the practically the same vesting rules as a qualified plan, because it is subject to Title I of ERISA. )

[mbozek]

A 403(B) plan is not a qualified plan for the purpose of crediting vesting service under the 411 regs.

[Guest Mike Melnick]

Consider the question of what is a "predecessor plan" for purposes of complying with Title I of ERISA (See ERISA Section 203(B)(1)©), rather than for purposes of qualification under 401(a).

[mbozek]

There have been court cases which have held that the determination of service under a predecessor plan for ERISA purposes is determined under IRS reg. 1.411-5(B)(3)(v). See Riccaridi v. Ricciardi P S Plan, 630 FSupp. 914 (1986). Only service under a qualified predecessor plan is counted under the IRS regs..

[Guest Mike Melnick]

Thank you very much for the citation.