Vesting Schedule for PPA Auto-Deferral Safe Harbor

[Übernerd]

Employer currently relies on an ADP/ACP safe harbor by making 3% non-elective contributions to its 401(k) plan. It would like to switch in 2008 to the new auto-deferral safe harbor created by the PPA, using annually escalating matching contributions with a 2-year vesting schedule. Per the current safe-haror rules, employees vest immediately in the 3% non-elective contribution. Will Employer run afoul of the post-Heinz regs on changes to the plan's vesting schedule if it imposes a vesting schedule on the new matching contributions? Section 411(a)(10) and the applicable DOL regs do speak in terms of "employer contributions," but one could argue that there's a difference between a non-elective contribution and a match.

[Edit] One more thing: the plan currently contains boilerplate allowing Employer to choose between safe-harbor non-elective contributions and safe-harbor matching contributions and stating (as is required) that either would be fully vested when made. Employer has never made a safe-harbar matchin contribution. So a related question would be whether the new PPA matching contributions would have to be treated the same as the safe-harbor matching contributions for which the plan currently provides. If so, the upshot would be that nobody using the current safe harbors could switch to any version of the PPA safe harbor that incorporates a vesting schedules--surely that wasn't the intent?

Thanks for any insight.

[Bob R]

Great questions - and ones where IRS guidance will be needed. However, unlike EGTRRA, PPA includes a provision stating that you there is prohibited cutbacks under 411(d)(6) as a result of implementing PPA provisions (unless the IRS tells us otherwise). So, we get guidance stating that there is a potential cutback, then these may be tough issues. I believe, however, that the IRS will allow you to impose the 2 year schedule on the matching contributions without violating 411(d)(6). I think the PPA anti-cutback relief will be construed very broadly.