Vesting Admendment?

[Guest Shaf]

Plan A would like to change there vesting schedule for all employer contributions from a 6 year to 100% immediate vesting. The problem is they would like to do it with an effective date, stating everyone that is still employed with company A on the effective date will have the 100% vesting. Everyone that has terminated from the company before the effective date will be still on the 6 year.

Can they do this?

I thought that when the amendment takes place it will change for everyone that still has money in the plan, terminated or not.

Please help.

Jesse

[Alf]

You want to fully vest all current employees? Sounds ok to me as long as you can pass 401(a)(4) testing. This assumes several things, such as you are not vesting because of a partial termination or discontinuance of contributions.

[Earl]

There is a rule for change in vesting schedule when a plan goes top heavy, but I am unfamiliar with effect of voluntary change.

It sounds consistent with the concept below, but I can't find anything that says you can.

§ 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. See Questions and Answers V-3, M-4, and M-10. In addition, if the individual is receiving benefits based on annual compensation greater than $200,000, such benefits cannot be decreased.