Last Day Requirement for Vesting?

[Spencer]

A client has requested that their document require that an employee be employed on the last day of the plan year in order to receive a year of service for vesting.

Currently, they are on a prototype that only requires 1,000 for vesting credit. Could we accomodate their request on an individually designed document?

[Dave Baker]

I think a plan is legally required to provide a year of vesting service under the plan's vesting schedule if the indvidual has 1,000 or more hours of service during the applicable "computation period" (generally the plan year), in order to comply with the minimum vesting standards of ERISA and the Code (for tax-qualified plans). I don't think there's any exception for plans to impose a last-day service requirement.

[david rigby]

Can't you use elapsed time method for vesting, or am I confused?

[MWeddell]

Not that I'd recommend this, but ...

One may craft unique vesting provisions that are always more favorable then the statutory / regulatory methods. For example, the plan's vesting schedule could be a 1-5 year graded vesting schedule using your last day of the plan year condition or the statutory 3-7 year graded vesting schedule using the normal 1,000 hours method of counting service. As a practical matter, you might find that the statutory schedule rarely matters.

Pity the recordkeeper or pension administrator who has to administer this provision and explain to the employer's payroll contacts why collecting hours of service data is still essential. It sounds like an error waiting to happen. One guesses that most recordkeeping and pension administration systems aren't set up to measure vesting service in two different methods and apply the more favorable of two completely different vesting schedules to the same contribution source.

[This message has been edited by MWeddell (edited 11-18-1999).]

[Guest mo]

You can use elapsed time, although I believe this has to be measured on an employment year basis rather than a plan year basis. However, switching from counting hours to elapsed time is tricky as I recall. I believe you have a transition year in which you may need to credit a year to any individual who satisfies either requirement. Also, because you have a change in the vesting computation period, you will probably have overlapping computation periods which may accelerate vesting for some.