PPA Vesting Rules

[davef]

Do the new vesting rules under PPA allow you to apply a 3-year cliff vesting schedule to matching contributions and a 6-year graded schedule to employer non-elective contributions? All of the various PPA explanations I've seen seem to imply that all employer contributions must be subject to the same vesting schedule. Under Code Sec. 411(a)(2)(B), is it possible to define the term "plan" to apply separately to the different contribution sources (similar to what the minimum coverage rules allow)?

[Peanut Butter Man]

The Explanation, on page 240, says that the faster vesting provisions "The provision applies the present-law vesting schedule for matching contributions to all employer contributions to defined contribution plans." It doesn't say whether you can have a 3-year cliff for one, and a 6-year graded for another type of contributions.

Section 904 of the Act is Faster Vesting of Employer NonElective Contributions. It amends IRC section 411(a)(2)(B) to say:

‘‘(B) DEFINED CONTRIBUTION PLANS.—

‘‘(i) IN GENERAL.—In the case of a defined contribution plan, a plan satisfies the requirements of this paragraph if it satisfies the requirements of clause (ii) or (iii).

‘‘(ii) 3-YEAR VESTING.—A plan satisfies the requirements of this clause if an employee who has completed at least 3 years of service has a nonforfeitable right to 100 percent of the employee’s accrued benefit derived from employer contributions.

‘‘(iii) 2 TO 6 YEAR VESTING.—A plan satisfies the requirements of this clause if an employee has a nonforfeitable right to a percentage of the employee’s accrued benefit derived from employer contributions determined under the following table:

The nonforfeitable

‘‘ Years of service: percentage is:

2 ................................................................................

........................ 20

3 ................................................................................

........................ 40

4 ................................................................................

........................ 60

5 ................................................................................

........................ 80

6 or more ................................................................................

.......... 100.’’.

[namealreadyinuse]

It means that all employer contributions must be subject to the same vesting schedule requirements of the Code.

Not that

all employer contributions must be subject to the same vesting schedule