Vesting question

[Guest carsca]

Assume a 401(k) plan has a five year cliff vesting schedule for employer contributions and credits vesting service on the elapsed time method. Employee A is hired on January 1, 2002, and leaves the Company on February 28, 2003 with 14 months of service.

If this employee is rehired on March 1, 2004, can the Plan provide that she has 1 year of service (so that she will complete her second year of vesting service on February 28, 2005), or must the Plan credit her with 14 months of service upon her rehire (so that she will complete a second year of service in December, 2004)?

In other words, under the elapsed time method, do you round down an employee's two periods of service before combining them?

Any cites would be helpful. Thanks.

[E as in ERISA]

You give credit for all 14 months. See Labor Regs. 2530.200b-9 for elapsed time rules.

[Kirk Maldonado]

Katherine;

What you cited was the temporary and proposed regulation that was issued by the DOL. Jurisdiction over that regulation was transferred to the IRS in the Reorganization Plan of 1978. The final elapsed time regulation is found at Treasury Regulation 1.410(a)-7.

In case you are curious as to how I know that trivia, I was the author of the final regulation when it was published in 1980.

[Jed Macy]

For an employee who was originally hired on 1/1/2002 and was not employed from 3/1/2003 to 2/28/2003, her Period of Service under the elapsed time method on 12/31/2004 is 710 days. The total time elapsed between her original date of hire and the 12/31/04 valuation date is 1095 days but is reduced by the 385 days of her Period of Severance since it exceeds 1 year.

How much is she vested on 12/31/2004? It depends on the definition of Period of Service in the document. If the document's definition uses the Rounding Method, then the answer is 2 years, but if the definition uses the Truncate Method, then the answer is 1 year.

See Treasury Reg. §1.410(a)-7(d).