Vesting in CB plan

[JanetM]

We had a pension plan and froze it to new entrants and accruals in 2002. We started a cash balance plan in 2003 woth every one starting off with a zero balance. Old DB plan was left intact to pay annuities accrued.

I read section 701 of PPA to require only converted cash balance plans to adopt 3 year vesting. Since we didn't convert, but started new plan, I think we can keep the 5 year vesting. Can someone please correct me if that is incorrect. The more I read PPA the less sense it makes.

[SoCalActuary]

My understanding from Judy Miller of Senate staff was that all cash balance plans would go to three year

vesting. This was a trade-off politically, "because these plans are for the 'mobile' workforce, they should

vest sooner."

[John Feldt ERPA CPC QPA]

This is in section 701 of PPA. The effective date section at the end of 701 has this:

(3) VESTING AND INTEREST CREDIT REQUIREMENTS- In the case of a plan in existence on June 29, 2005, the requirements of clause (i) of section 411(b)(5)(B) of the Internal Revenue Code of 1986, clause (i) of section 204(b)(5)(B) of the Employee Retirement Income Security Act of 1974, and clause (i) of section 4(i)(10)(B) of the Age Discrimination in Employment Act of 1967 (as added by this Act) and the requirements of 203(f)(2) of the Employee Retirement Income Security Act of 1974 and section 411(a)(13)(B) of the Internal Revenue Code of 1986 (as so added) shall, for purposes of applying the amendments made by subsections (a) and (b), apply to years beginning after December 31, 2007, unless the plan sponsor elects the application of such requirements for any period after June 29, 2005, and before the first year beginning after December 31, 2007.

Assuming this really is a different plan, not just an amendment of an existing plan, then if your cash balance plan did not exist on June 29, 2005, it must adopt at least a 3-year cliff vesting schedule from the start of the plan. Cash balance plans established before June 30, 2005 can wait until 2008 to change their vesting schedule.

[JanetM]

J4FKBC - that is great. Thanks again.

[John Feldt ERPA CPC QPA]

You're welcome.

By the way, you may as well adopt a 2-years of service entry requirement and provide immediate vesting and base the "contribution credits" on years after date of entry. They will "miss" one year of benefit accrual that way. Since you can't use 6-year graded schedule, it appears to lower the NHCE true cost (the amount paid out from the plan).

Well, this lowers the overall ultimate NHCE cost, except when they quit between year 2 and year 3. Do a projection for 5, 6 or 7 years and look at the total account balance at that time compared to the plan without the 2 years of service entry requirement.

If most NHCEs will quit during year 2 for your employer, or if keeping the ultimate NHCE costs down are not your objective, then just put in the usual entry dates and a 3-year cliff vesting schedule.