Crediting of Prior Service under New 401(k) Plan

[rocknrolls2]

Employer X is establishing a 401(k) plan for its employees effective January 1, 2008. X intends that the plan satisfy the automatic enrollment safe harbor to the ADP/ACP tests and for top-heavy purposes. Consequently, it would be adopting a two-year cliff vesting schedule. The employer has been around for a number of years and there are certain entities technically unrelated to the employer which are involved in selling the employer's products. Under its other qualified plans, service with such other entities is taken in to account for eligibility and vesting purposes.

Assuming that eligibility is immediate, can X have its plan provide that service for vesting purposes will be credited by looking solely for those employees who are rehired during 2008 or 2009 only, so as to limit the complexity of recordkeeping for any former participant who terminated many years earlier and then returns?

[PLAN MAN]

For vesting purposes, the plan can be written to disregard years of service before the year the plan was established. Under this provision, any service earned before 2008 would not count for vesting and all employees (except those at normal retirment age) would be 0% vested as of 1/1/2008. (Remember, this rule does not apply to eligibility.)

If there is a predecessor plan, certain service may not be disregarded. See the regs. under section 411 for more information.