Plan Adoption Timing

[Guest rslagle224]

Background: We adopted a plan document during 2004 with a January 1, 2004 effective date. (The plan was a volume submitter with a 1000 hr and last day requirement). The plan sponsor decided to utilize Safe Harbor 3% beginning in 2005. To simplify things, the plan sponsor choose to adopt full and immediate vesting with the new document for 2004.

Issue: We had two employees that terminated in 2003 that were paid out in the beginning of 2004 that were paid out based on the old vesting schedule (both were not fully vested based on 2-6 yr) in affect prior to the adoption of this new document with F & I vesting. Do you think that the forfeitures for these former participants should be paid to the participants because they would be considered fully vested under the terms of the plan document? Or are we okay in keeping their payout the way it was?

Thoughts? Concerns? Need more info?

[WDIK]

How is the change in vesting schedule worded? Is it specific enough to draw a distinction between old versus new contributions, active versus terminated employees?

[Guest rslagle224]

How is the change in vesting schedule worded? Is it specific enough to draw a distinction between old versus new contributions, active versus terminated employees?

Document: If the Plan is amended in any way that directly or indirectly affects the computation of a Participant's Vested Interest in his or her Participant's Account or the Plan is deemed amended by an automatic change to or from a Top Heavy vesting schedule, the following will apply: the following is just (a)the ability for a participant to elect the vesting schedule he wants (b) Notwithstanding the foregoing to the contrary, if the vesting schedule is amended, then in the case of an Employee who is a Participant as of the later of the date such amendment is adopted or the date it becomes effective, the Vested Interest in his or her Participant's Account determined as of such date will not be less than his or her Vested Interest computed under the Plan without regard to such amendment

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After reading this a little more, I found a good definition of a participant that I believe would allow us to leave the forfeitures in the plan:

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Document: The term Participant means any Employee who has met the eligibility and participation requirements of the Plan. However, an individual who is no longer an Employee will not be deemed a Participant if his or her entire Plan benefit .....(b) is paid in a lump sum distribution which represents such individual's entire interest in the Plan

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I believe the definition of the participant is the key there. The participant was paid out prior the adoption of the plan but was not paid out prior to the effective date of the plan.

[Guest Ron Sevcik]

We have always used the procedure that the date of termination determines the employee's benefit. If the employee terminated in 2003 and the change is effective in 2004, it does not effect him. If he teminated in 2004 before the adoption date but after the effective date, then yes he would get the new vesting. However, in your case he terminated before the effective date and therefore does not qualify for the new benefit.