vesting in short year

[Guest m.n.ouellette]

I know this is probably a very elementary question, but I just don't wanna screw this up...

10/31 fiscal year amending to calendar. So now I have a short year from Nov 1 thru Dec 31. What do I do with vesting?!?

Thanks!

[Tom Poje]

punt.

I don't think it is elementary at all. you just need to know where to look. there is even an example.

see [Labor Reg §2530.203-2©]

you have to use a 12 month period, so hours get double counted. lest that seems unfair, HCE definition using the same basic concept. always a 12 month period.

[david rigby]

You can (generally) get the same result by giving a full year of vesting service for the short plan year, even if benefit service for short PY is less than 1.0.

[Guest m.n.ouellette]

Thank you to both. I believe I understand, and I could not for the life of me find anything in my ERISA Research Guide.

Thanks again!

[jpod]

I must assume that the plan is using the hours method (rather than elapsed time), otherwise the py would be irrelevant. What you must do (at a minimum) per the DOL regs. is to give the individual a YOS if he completes 1,000 in the 12-month period that begins with the 2-month short plan year, and then another YOS if he completes 1,000 in the first full calendar year plan year. You are essentially double-counting his hours during the 10 months following the 2-month short plan year. I suppose you could amend the plan to give everyone an automatic YOS for the 2-month short plan year, but I don't see the point of that.

[Guest m.n.ouellette]

I must assume that the plan is using the hours method (rather than elapsed time), otherwise the py would be irrelevant. What you must do (at a minimum) per the DOL regs. is to give the individual a YOS if he completes 1,000 in the 12-month period that begins with the 2-month short plan year, and then another YOS if he completes 1,000 in the first full calendar year plan year. You are essentially double-counting his hours during the 10 months following the 2-month short plan year. I suppose you could amend the plan to give everyone an automatic YOS for the 2-month short plan year, but I don't see the point of that.

Right, because either way it's 2 YOS for vesting. I fully understand, and I appreciate these answers. Everyone here is so thoughtful, and I rely on BL Message Boards to answer many questions. What a nice community we have as TPA's (et al).

[Bill Presson]

I must assume that the plan is using the hours method (rather than elapsed time), otherwise the py would be irrelevant. What you must do (at a minimum) per the DOL regs. is to give the individual a YOS if he completes 1,000 in the 12-month period that begins with the 2-month short plan year, and then another YOS if he completes 1,000 in the first full calendar year plan year. You are essentially double-counting his hours during the 10 months following the 2-month short plan year. I suppose you could amend the plan to give everyone an automatic YOS for the 2-month short plan year, but I don't see the point of that.

I read the regs and it appears to match with exactly what you say here. But (like many things), it seems to work differently than what I "knew".

To put specifics on it:

1. Year 1 ends 10/31/2007. full 12 month year, count vesting normally. (eg, full time participant at 20%)

2. Year 2 (short) ends 12/31/07. 2 month year and, according to the regs, no vesting is credited on the 12/31/07 stmts? (eg full time participant still at 20%)?

3. Year 3 ends 12/31/08. full 12 month year. vesting is counted for full year 3 AND 12 month period ending 10/31/08? (eg full time participant at 60%)?

What I previously "knew" to be the case:

1. Year 1 ends 10/31/2007. full 12 month year, count vesting normally. (eg, full time participant at 20%)

2. Year 2 (short) ends 12/31/07. 2 month year and vesting is credited for the 12 months ending 12/31/07. (eg full time participant at 40%)

3. Year 3 ends 12/31/08. full 12 month year. vesting is counted for 12 months ending 12/31/08? (eg full time participant at 60%).

According to the regs, looks like I've been wrong, but my way sure seems to make more sense. Did I misinterpret something or read something wrong here?

Thanks.

[jpod]

bill Presson: You went backwards when you used the 2-month stub period. That is not what the regs require. However, I suppose it's no harm no foul as long as the individual got a year of vesting service for the 12-month period going backwards. But if he didn't have 1000 hours going backwards, you need to give him the opportunity to get that year of vesting service by looking forward.

[Bill Presson]

bill Presson: You went backwards when you used the 2-month stub period. That is not what the regs require. However, I suppose it's no harm no foul as long as the individual got a year of vesting service for the 12-month period going backwards. But if he didn't have 1000 hours going backwards, you need to give him the opportunity to get that year of vesting service by looking forward.

I know I went backwards. As I said, this is where my confusion enters. It just seems odd to me.

What about this sentence from reg 2530.203-2©(1): "A plan amendment changing the vesting computation period shall be deemed to comply with the requirements of this subparagraph if the first vesting computation period established under such amendment begins before the last day of the preceding vesting computation period and an employee who is credited with 1,000 hours of service in both the vesting computation period under the plan before the amendment and the first vesting computation period under the plan as amended is credited with 2 years of service for those vesting computation periods." (emphasis added)

I still read this as I interpreted it in my example. Thoughts?

[jpod]

I can see your point about the rule as articulated in the text being confusing, but isn't the example that immediately follows the text crystal clear (that you look forward)?

[Tom Poje]

I think one problem with the example is the assumptions drawn from it.

Clearly I think you would agree that it requires a 12 month period (as oppossed to pro-rata the hours)

and I think clearly that the new vesting period has to begin before the old one ends.

then the example comes in and seems to befuddle things...

but there is nothing in the example that says that the change was due to a short plan year. all it says is that the plan had been using the calendar year period to calc vesting and now it is switching to a different period -(I guess I have seen some fiscal year plans use calendar year comp and nours) so maybe that is the situation the example is referring to.

I would the example Bill indicated under 'previous' knew makes perfect sense with the regs - in year '2' the vesting computation period began before the period in '1' ended.

look at other examples such as eligibility - a plan that has a 2 year wait but switches from anniverasry date to plan year arrives at the same results. e.g. a person hired 9/1 gets 1 year of elig service on 9/1 and then another on 12/31

[mming]

Regarding eligibility, if a plan requires 1 year of service (defined as 1,000 hours during a 12 consecutive month period) and someone is hired 9/30, they would enter the plan as of 1/1 in the above example if they work at least 167 hours during the short PY?