Vesting in Cash Balance Plans

[zimbo]

An ERISA attorney for a client is insisting that the regs are not clear regarding the 3 year vesting requirement for existing Cash Balance Plans. He thinks that, analogous to DC Plans, that the pre 2007 accrued benefits can continue to vest at the pre PPA rate and the 3 year schedule only applies to post PPA accrued benefits. I believe the regs make it clear that the 3 year schedule applies to the entire accrued benefit.

Has anyone heard any interpretation similar to this one?

[Penman2006]

I am fortunate to do a fair amount of cash balance plan work with a couple very experienced well regarded ERISA attorney's (separate practices and separate geographically) and neither of them have taken that approach in drafting documents or amendments.

[Guest TooMuchFreeTime]

Assuming he's right, and the 3-year vesting requirements are only applicable for prospective accruals, let's not forget that maintaining multiple vesting schedules would be administratively burdensome. You'd have to separately track accruals for each vesting schedule for all affected participants (those who are not 100% vested under the old schedule). Unless the client's particular industry sees a lot of turnover in that 3-5 year vesting range (where they may forfeit on termination under the old schedule, but not the new), the cost savings are likely to be minimal.

I love picking apart the specific requirements of the law, but at some point we have to pay some deference to pragmatism.

[zimbo]

I am reading 1.411(a)(13)-1© of the "statutory hybrid regs" and I can't see where the attorney is coming from. It is actually written in relatively plain english for once. Maybe that is confusing the attorney, or perhaps he is low on billeable time this month. Seriously, in the esteemed words of Sigmund Freud, "sometimes a cigar is only a cigar". The regs say:

"Thus the 3 year vesting requirement applies with respect to the entire accrued benefit of a participant..." It then goes on to make emphasize that this even applies when only a portion of an accrued benefit is attributable to a statutory hybrid plan.