Vesting and merger of two 401(k) plans

[Guest barnold]

A prospect has a 401k plan with a discretionary 100% match. The employer has never made a match and doesn't really even know why it was in the adoption agreement in the first place (but it was). However, they now want to make a match, but don't want it to be 100% vested. My basic question is - is there any way around this? If they keep the plan where it currently is, then I think the rules under Section 411(a)(10) will prevent them from imposing vesting on any of the current participants. They could amend for new participants going forward.

I'm wondering if this result can be avoided by first eliminating the matching contributions from the existing plan. Since there are no matching dollars, this would seem to be pretty simple. Then, we would establish a a new 401(k) plan with a matching contribution that is subject to vesting. Finally, we would merge the two plans together (the current plan which would no longer have a match being merged into the new plan).

Does anyone think that would work? If not, is anyone familiar with any legitimate technique for solving this problem?

[Alf]

You have identified the technical problem with just changing the match vesting I suppose. However, assuming that you can't just change the vesting schedule for a type of contributiont that never existed, it would be easier to adopt a profit sharing or nonelective contribution provision with a "matching" type allocation formula and use your vesting schedule there. Some plans even have "supplemental match" provisions that could be used as well. The terms would be off a bit, but it has got to be easier than two plans and a merger.