Vesting issues...

[Guest RONNIE WASEL]

I have two controlled group members (A and b) who each have a plan, both subject to a 6-year graded vesting schedule. There are frequent transfers of employees between members. If an employee works for member A for three years, then transfers to member B, I would assume that employee is considered to have 3 years of service (for vesting and participation) upon commencement of service with member B. And, over the next three years, that employee would be 100% vested in member B’s plan. However, I would also assume that, since the employee became only 40% vested in member A’s plan as of the date of transfer, that employee would normally not continue to earn vested years of service with A’s plan and, therefore, would forfeit 60% of the employer’s contribution to A’s plan.

Am I correct in this assumption? Is there any way around this, other than having the employee transfer back to member A and earn the requisite years of service? What if member A’s plan covered both member A and B employees, but did not include member B compensation for purposes of benefits? In other words, after the transfer, the employee would be a participant in both the plan of A and B. However, contributions to the A plan would not be made on compensation earned as an employee of B, although vested years of service would continue to be earned. Would this work?

[E as in ERISA]

With limited exceptions, all service within the controlled group counts for eligibility and vesting purposes (its just not counted for accrual of benefits or allocation of contributions). The employees' service with B is counted for purposes of plan A.

[Guest LKHartnett]

I think the reference is to whether or not non-vested amounts in Plan A are forfeited when the employee moves to Plan B . . . am I correct Ronnie Wassel?

Of course, I am simply interpreting your question . . . I have no answer . . . sorry.

[E as in ERISA]

I am saying that the employee continues to vest in plan A after the transfer to B! So after another three years with B, then there are no non-vested amounts in plan A.

[Guest Remysis]

Simplifying a bit here, but the A/B controlled group is one, big employer. Service with B is the same as service with A. For purposes of vesting in the A plan, the transferred employee may as well still be working for A after the transfer. Though working for B, the employee should continue to vest in the A plan based on service with B. The A plan should already provide for this, though it may not jump off the page. It is generally reflected in the interplay of the definitions of employee, employer, and year or hour of service. It would not be appropriate to forfeit the unvested account balance at the time of transfer since the participant has not terminated employment with the employer maintaining the plan -- i.e., the A/B controlled group.