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Requirements for change of vesting schedule


Guest GordonCO

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Guest GordonCO

We are looking at modifying the vesting schedule for our money purchase plan. The current schedule is 100% immediate with contributions beginning after a 22 month waiting period. The new schedule would likely be a 5-year cliff with no waiting period; contributions beginning upon hire. Can someone tell me what the requirements would be for making this type of change. I believe we would need to allow anyone with three years of service to elect which schedule they would fall under, but are their other requirements? Would we just begin making contributions for employees with less than 22 months of service that elect the 5-year schedule upon adoption of the plan amendment? Any retroactive contributions? Any unforeseen pitfalls?

Thanks for any insight!

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Guest GordonCO

MJB,

Thanks for the clarification on 411(a)(10). I believe I worded my question poorly however. The more important question is: if we adopt the change to vesting, do we just begin contribution for those employees with less than 22 months at the time we adopt the change? And would we apply the new schedule to all employees with less than 22 months and the old schedule to those with more than 22 months?

Thanks

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This is a state law issue. A lawyer would have to look at the state statutes, administrative interpretations, and case law to decide. In my state (NC) once a benefit has become vested, certain rights attach that can't be taken away ever. But in your state, who knows? Maybe every employee employed before the vesting schedule is changed has the right to be covered by that vesting schedule. Maybe not.

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And if you are in a state that lets you write your own plan, it's an HR decision. There are at least three other lines you could draw. First, you could apply the new schedule to hires after X date. Second, you could apply the new schedule to contributions made after X date. Third, you could apply the new schedule to contributions on account of compensation after X date. I don't know if you ahve a minimum hours rule, but if you do, you cauld adjust any line by treating those who have met the minimum for the year differently from those who have not.

Have fun. You really ought to hire somebody to advise you. There are lots of other things (e.g., collective bargaining agreements, the plan document) that could affect your situation, and this sort of forum simply can't get into that level of detail.

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