vesting credit

[Guest gwj57]

Is vesting credit required for 2 years of service where there is an overlap of the first year of employment with the vesting computation period (plan year)? If yes, do you have a cite?

[stephen]

Please provide an example-

[four01kman]

As with most things , it depends. Are you using "counting hours" or "elapsed time"? With the first, the answer is maybe, with the second, no.

[Guest gwj57]

Counting hours is the method. An example is a calendar year vesting computation period where an employee is hired July 1. She has 1000 hours in her first employment year and 1000 hours during the first full calendar year after she's hired. I'm tring to figure out if she gets credit for 2 years of service as of the end of that full calendar year follwing her start date, and if so I'm looking for the reg or ruling.

[stephen]

She will get 1 year of vesting credit for the first calendar year 7/1 - 12/31 and another year for the second year if she has at least 1,000 hours in the following calendar year.

[rcline46]

Since vesting is on a plan year basis, credit is given for EACH plan year to be included, whether employed or not. There is no overlap in a normal situation.

The only overlap that can occur is if there is a SHORT plan year. In that case you count hours for the ORIGINAL plan year as if it were not shorted and give credit if over 1,000 hours, and then count hours for the NEW plan year, including the overlap, and again give credit if over 1,000 hours.

[Kirk Maldonado]

There is such a rule for eligibility service. It is found in the DOL regs at Section 2530.202-2(b)(2), which provides as follows:

(2) A plan may designate plan years beginning with the plan year which includes the first anniversary of an employee's employment commencement date as the eligibility computation period after the initial eligibility computation period (without regard to whether the employee is entitled to be credited with 1,000 hours of service during such period), provided that an employee who is credited with 1,000 hours of service in both the initial eligibility computation period and the plan year which includes the first anniversary of the employee's employment commencement date is credited with two years of service for purposes of eligibility to participate.

[rcline46]

In my prior post I said employed. SInce you can't get hours credit if not employed I mistyped. It should be participating.

Kirk is correct, of course, for the eligibility overlap. But eligibility service should not be confused with vesting service. And vesting service should not be confused with accrual service. They each have their own rules.

[R. Butler]

I'd check your document. I have seen documents that calculate vesting based on the hire date & each anniversary thereafter.

[Tom Poje]

The cite is from Labor Regs (not from Treas Reg or Internal Rev Code which most are familiar with)
but it is always a 12 month period, so generally you would only have an overlap if there was a short plan year involved, as was sort of mentioned above. this is different than the situation in which eligibility may overlap.

§ 2530.203-2 Vesting computation period.

(a) Designation of vesting computation periods. Except as provided in paragraph (b) of this section, a plan may designate any 12-consecutive-month period as the vesting computation period. The period so designated must apply equally to all participants. This requirement may be satisfied even though the actual 12-consecutive-month periods are not the same for all employees (e.g., if the designated vesting computation period is the 12-consecutive-month period beginning on an employee's employment commencement date and anniversaries of that date). The plan is prohibited, however, from using any period that would result in artificial postponement of vesting credit, such as a period meassured by anniversaries of the date four months following the employment commencement date.

(b) Plans with 3-year 100 percent vesting. For rules regarding when a participant has a nonforfeitable right to his accrued benefit, see section 202(a)(1)(B)(i) of the Act and section 410(a)(1)(B)(i) of the Code and regulations issued thereunder.

© Amendments to change the vesting computation period.

(1) A plan may be amended to change the vesting computation period to a different 12-consecutive-month period provided that as a result of such change no employee's vested percentage of the accrued benefit derived from employer contributions is less on any date after such change than such vested percentage would be in the absence of such change. A plan amendment changing the vesting computation period shall be deemed to comply with the requirements of this subparagraph if the first vesting computation period established under such amendment begins before the last day of the preceding vesting computation period and an employee who is credited with 1,000 hours of service in both the vesting computation period under the plan before the amendment and the first vesting computation period under the plan as amended is credited with 2 years of service for those vesting computation periods. For example, a plan which has been using a calendar year vesting computation period is amended to provide for a July 1-June 30 vesting computation period starting in 1977. Employees who complete more than 1,000 hours of service in both of the 12-month periods extending from January 1, 1977 to December 31, 1977 and from July 1, 1977 to June 30, 1978 are advanced two years on the plan's vesting schedule. The plan is deemed to meet the requirements of this subparagraph.

(2) For additional requirements pertaining to changes in the vesting schedule, see section 203©(1) of the Act and section 411(a)(10) of the Code and the regulations issued thereunder.

(d) Service preceding a break in service. For purposes of applying section 203(b)(3)(D) of the Act and section 411(a)(6)(D) of the Code, (relating to counting years of service before a break in service for vesting purposes), the computation periods used by the plan in computing years of service before such break must be the vesting computation periods. (For application of the break in service rules, see section 203(b)(3)(D) and section 411(a)(6)(D) of the Code and regulations issued thereunder.)

[My 2 cents]

To clarify how vesting is counted when the plan year is constant, with no short year (plan uses 1,000 hours in a plan year as the requirement to earn credit). Assume that the employee is over 18 when hired, and works full time (i.e., at least 170 hours in each month). Suppose hired 7/1/14. Terminates employment 6/30/16.

2014 plan year: Worked 1,000 hours during 2014, so gets a full year of vesting service.

2015 plan year: Worked 1,000 hours during 2015, so gets a full year of vesting service.

2016 plan year: Worked 1,000 hours during 2016, so gets a full year of vesting service.

So despite having worked 2 year (elapsed time), the plan would credit the person with 3 years of vesting service. That is how it should be if the plan defines a year of credit for a plan year in which the person worked 1,000 hours or more.

This does not involve any kind of overlap.