Amended vesting schedule affect on terminated employees

[Guest jsample]

An employer wants to amend their current graded vesting schedule and make all employer contributions full and immediately vested. The employer wants this change to apply to participants who have already terminated (generally I would see this as opposite of what employers would want to do).

My question is can they do this?

In the ERISA OUtline book it references a "One hour of service rule" to determine whether amended vesting schedule applies to a participant. I would think only current participants will get this benefit of full vesting, and the plan will have to distribute and forfeit terminated participants under the old vesting schedule, but as stated above, the employer wants to fullv vest everyone, including terminated participants (and already communicated this to the terminees).

[WDIK]

If you take as an example the EGTRRA sample amendment found in Notice 2001-57 for changes to the vesting schedule for matching contributions it appears that an employer can be more liberal that the hour of service requirement.

VESTING OF EMPLOYER MATCHING CONTRIBUTIONS

1. Applicability. This section shall apply to participants with accrued benefits derived from employer matching contributions who complete an hour of service under the plan in a plan year beginning after December 31, 2001. If elected by the employer in the adoption agreement, this section shall also apply to all other participants with accrued benefits derived from employer matching contributions

[david rigby]

The goal is accomplished by selection of a retroactive effective date for the plan amendment. Theoretically, there could be a concern under the 401(a)(4) regs.

[Guest DMK]

Following up on Pax's comment, if the amended vesting schedule were applied retroactively, would it only apply to these terminated employees who still have their accounts in the plan? What about those who already received distributions based on the old vesting schedule? Seems like there could be some potential issues here.