targeted vesting

[Guest moltengater]

Two employees leave company A in 2005. EE #1 is 0% vested in his match and EE #2 is 80% vested in his matching account balance. Both EE 1 & EE 2 are NHCE's. For whatever reason, the employer wants to make them both 100% vested in their matching account balances.

Can this be done with a simple amendment targeting these two employees - without changing the vesting schedule for all the other employees, or would accelerating the vesting on these two targeted employees be a violation?

[Effen]

Obviously they have the negatives

Why not just pay them a bonus equal to what they would have received from the plan. It just seems like a lot of effort to amend the plan for two terminated employees.

[Guest moltengater]

I assume then that they can amend the plan? What if one of the employees was a HCE - would there be a BRF issue, i.e. they would have to pass current and effective availability on the amendment.

[Effen]

I purposely didn't respond to the legality of such a change because I really don't know. If just seemed strange the employer would be willing to incur the cost to amend the plan and potentially revised election forms, 5500s, SPD, SMMs, valuation reports, etc... to pay two short term employees a relatively small distribution. The bonus would be much simpler and cheaper.

My initial reaction was that you probably could amend the plan to change the vesting for two NHCEs. The mechanics might be tricky. Would you do it by name or create some other criteria that only they meet? Could you treat it like a window? Did any other "similar" employees get treated differently? Would the employer open himself up to an employment practice lawsuit based on something else? (gender, age, hair color, etc....) What is he going to do when these two give the pictures to the next two?

If either was an HCE, I think you definitely have a BRF issue to be examined. Maybe someone else will chime in with more specific info.

[MWeddell]

There is 401(a)(4) testing of vesting schedules. Technically, it's not BRF testing, but the arithmetic can be the same as the BRF test. Hence, if one of them is an HCE, then yes there may be problems.

I don't see a problem though if they are both NHCEs and the employer is aware of the cost implications of doing this.