help w/ vested percentage

[Brian Gallagher]

Please help with calculating this person's vesting. We have differing opinions here at the office.

Fact pattern:

3 yr cliff vesting schedule

DOH = 2/15/02

DOT = 9/1/04

worked >1000 hrs in '02

plan switched to elapsed time vesting effective 1/1/03, was 1000 hrs before that.

How many years? 2 or 3?

[FundeK]

Assuming a calendar year plan.

I would give two years of service

2002 - Worked 1000 hrs = 1 YOS

2003 - Worked entire year = 1 YOS

2004 - Terminated prior to year end, NO YOS

[E as in ERISA]

I assume that they use plan year for the computation period and its a calendar year plan?

What's the argument in favor of three? Protection of vesting percentage upon amendment? Doesn't that only apply to the percentage at the time of adoption or effective date of the amendment? IRC 411(a)(10)(A) and ERISA 203©(1)(A).

[rlb64]

See Reg 1.410(a)-7(f),

I think you still have to count hours to see if that would have produced a better result.

[E as in ERISA]

Does that apply here if you don't have different methods for different classes and the participant isn't switching?

[rlb64]

It looks that way, see Reg 1.410(a)-7(g)

[E as in ERISA]

I think I'm convinced...

[david rigby]

I'm not. In the original post, the change occurred on 1/1/03, which we presume is the first day of a plan year. I think 1.401(a)-7(f)(1)(i)(B) is the greater of 1 or 1.

I agree with the answer of 2.

[E as in ERISA]

Why isn't the answer the greater of "1 or 2." I'm not familiar with how this section works in transfers. Isn't (B) giving you "the greater of" the period that would be credited under the elapsed time method during the transfer period or the service that would be taken into account under the hours method during that same period? Isn't that what it mean when it says "the service taken into account under the computation periods method as of the date of transfer"? It's telling you to use the calcuation method that had been used up until the date of transfer -- and that would be hours?

I agree that under elapsed time you'd only get one year (2003). However, under the hours method, you'd generally get credit for both 2003 and 2004 assuming that you had 1000 hours in each (which a FTE would generally have by September).

[david rigby]

My interpretation is that (f)(1) is intended to apply to transfers during a computation period. (g) extends the issue to plan changes. Either way, a change (or transfer) that occurs on the first day of the plan year would make the point moot. Is that reasonable?

[rlb64]

I think it's confusing as well. The IRS should have clarified the following sentence under the reg:

In addition, the employee shall receive credit for service subsequent to the transfer commencing on the day after the last day of the computation period in which the transfer occurs..."under the elapsed time method."

I'd still be on the safe side and give credit for 2004 if he had 1000 hours. I think Katherine's right in that one could also argue it is a schedule change for which the participant should have been given an election to choose the old or new method.

[david rigby]

I think Katherine's right in that one could also argue it is a schedule change for which the participant should have been given an election to choose the old or new method.

Did Katherine say that?

See IRC 411(a)(10). Participants with 3+ years of vesting service should be given the option for electing a vesting schedule. Any participants with less than 3 years are exempt from that requirement.

[rlb64]

Good point.

[Brian Gallagher]

To answer a question that came up a couple times: plan year = calendar year.

In response to the previous few posts: I thought the 3 year req'ment was for when vesting SCHEDULES changed. There is no change in the schedule (still 3-yr cliff), but the service req'ments have changed for a eyar of service for vesting.

PS: How do you make the box around the quotes from a previous post? (You can PM me with the answer so as not to clutter the board. Thanks!)