Another Change in Vesting Schedule Question

[Guest aciepluch]

This question is similar to the previous post . . .

Here's my basic question: If a 401(k) plan provides that the fixed (2.5%) employer match is 100% vested, could the plan be amended to apply a graduated vesting schedule to future employer matching contributions? I know that such an amendment could apply to new participants, but what about current participants?

Here are the more complicated facts:

Current terms:

-fixed match (2.5%), 100% vested

-discretionary nonelective 2/20 vesting schedule

Proposed change:

-safe harbor match, 100% vested (note that the safe harbor match will be greater than the current fixed match amount)

-eliminate fixed 2.5% match

-add discretionary non-safe harbor match with 2/20 vesting

Thanks!

[Tom Poje]

when EGTRRA went into effect, match vesting had to switch to 2/20.

The IRS made it clear that you could keep the old $ under the old vesting schedule, and apply the new schedule to new $ only.

However, once someone has 3 years of service that person gets to choose between the old schedule and the new vesting schedule, so at that point in time you are only talking about a group of employees who have worked less than 3 years. that has always been the rule since I have been doing things.

see 411(a)(10)(B) of the Code

also see ERISA 203 for a discussion on vesting.

[Guest aciepluch]

Thanks. That's what I thought. Is there any teeth to the position that the discretionary match is a new benefit w/ a new vesting schedule? I'm thinking not . . . and haven't found any guidance that has helped.