vested?

[Guest mikeak]

Participant Joe began working for Company A 1/1/1999; A had a cash balance DB plan using elapsed time 5-yr cliff vesting. As part of employment agreement, Joe was vested immediately in the plan.

Company A was acquired by Company B 1/1/2001. Accrued benefits in A's plan were 'frozen' as of 12/31/2000 except accounts will continue to receive annual interest per plan design. B took over administration of A's plan and will pay all benefits for former A participants out of B's plan. B has traditional DB plan with 1000 hr 5-yr cliff vesting. B will use Company A employment date of participants for vesting purposes for former A employees in B plan, but they accrue benefits in B plan only from 1/1/2001 forward. Joe will get A-plan benefit + B-plan benefit upon retirement.

Joe says because he was vested in A, he is also vested in B. Does he have a case?

[MGB]

How can an employment agreement make Joe immediately vested in A? That doesn't pass the smell test at all, unless everyone was fully vested in A.

I do not think that he needs to be automatically vested in B, but verys specific plan language needs to be reviewed to make a clear decision. Based on what you've described, I'd say no.

[Guest mikeak]

Let me clarify the 'employment agreement' issue: Company A was a spinoff of another company (call it A1), and part of establishment of Company A included that anyone with service in A1 got that service credit towards vesting in A. Joe had many years with A1 and was vested in their plan. So his immediate vesting was not an explicit part of employment offer but he qualified based on work history.

[david rigby]

If the terms of plan A clearly include A1 service for vesting purposes, the Joe would be vested in Plan A. But this should be in the plan, not in some side agreement.

The next question is what date B will use to determine service: employment date with A1 or with A. B gets to decide this. If B chooses the date with A, then it appears that Joe is not vested in B. If Joe does not like it, then he can petition plan B sponsor to amend the plan.

[RTK]

I have question: How can B pay A Plan benefis from B Plan (unless the plans are merged)?

Note that code section 414(a)(1) provides that where an employer maintains the plan of a predecessor employer, service for the predecessor is treated as service for the employer. However, I can't recall ever seeing any guidance on this.