Change in vesting schedule and affect on terminated participants

[Guest dlm]

A plan changed it's vesting schedule effective 1/1/98, amendment adopted 8/15/98. The schedule was changed to a quicker more lenient schedule. What happens to the terminated participant who was terminated 6/15/97, but not paid out until 9/14/98? Must he get more of a distribution based on the increased vesting? or since he was terminated in 1997 does his vesting stay under the old schedule?

I have found much information on going from favorable to less favorable schedule, but not alot on the reverse??

Any info would be appreciated.

thanks!

[Ervin Barham]

Check the bowels of your plan document. There should be a paragrpah buried in there on changes in vesting. Generally most vesting schedule changes (either way) apply to participants with one hour of service after the effective date of the change.

[imchipbrown]

A participant is a participant until he's paid. He (or she) gets the new vesting.

Being home, I don't have my cites, but check this out...

Older plan documents didn't used to spell out what happened when someone left with 0% vesting. If a plan terminated within 5 years of someone who left with a zero % vested account balance, it would have to be restored, because a forfeitable event hadn't occurred (five years hadn't passed, or a distribution hadn't been made).

More recent plan documents contain a Zero-Benefit Cash out clause... you are deemed to have received a check for $0.00 if you're not vested.

[Ervin Barham]

No disrespect, Chip, but I beg to differ with your opinion. The top heavy rules give guidance as to what happens when a plan goes from a 7 year graded schedule to a 6 year top heavy schedule, thus the basis for my answer.

FINAL-REG, PEN-FINAL-REG, §1.416-1. Questions and answers on top-heavy plans

T-43 Q. What happens to an individual who has ceased employment before a plan becomes top-heavy?

A. If an individual has ceased employment before a plan becomes top-heavy, such individual would not be required to receive any additional

benefit accruals, contributions, or vesting, unless the individual returned to employment with the employer.

FINAL-REG, PEN-FINAL-REG, §1.416-1. Questions and answers on top-heavy plans

V-3 Q. What benefits must be subject to the minimum vesting schedule of section 416(b)?

A. All accrued benefits within the meaning of section 411(a)(7) must be subject to the minimum vesting

schedule. These accrued benefits include benefits accrued before the effective date of section 416 and benefits accrued before a plan becomes top-heavy. However, when a plan becomes top-heavy, the accrued benefits of

any employee who does not have an hour of service after the plan becomes top-heavy are not required to be

subject to the minimum vesting schedule. Accrued benefits which have been forfeited before a plan becomes

top-heavy need not vest when a plan becomes top-heavy.

****

In dlm's example, the vesting would apply to anyone with an hour of service after 1-1-98, the effective date of the change.

You are correct in your termination scenario that a participant who has not been cashed out will receive full vesting - and I hear complaints about that from plan sponsors every time!

[imchipbrown]

That hour-of-service after the change seems to nail it, Erwin.

That's the trouble with answering these questions from home!