elementary vesting question

[Lori H]

basic 401k has a 6 year graded schedule. 1000 hours year of service. AA states that for vesting purposes the vesting computation shall be the plan year. A participant in a calendar year plan has a DOH of 7/2/06 with 920 hours at year end and works all of 2007 with over 2000 hours. For vesting purposes this participant has 1 YOS and is 0% vested, correct?

For discussion purposes, the plan has an option to choose the vesting computation to be the date an employee first performs an Hour of Service and each anniversary thereof. So if that participant was hired 7/2/06 and as of 7/2/07 worked 1000 hours. He would have 1 YOS by the anniversary. How would you compute vesting based on the remainder of the plan year 7/2/07 thru 12/31/07 if the part next anniversary is not until 7/2/08?

Am I making this more difficult than it really is? Thoughts?

[J Simmons]

Correct.

If the EE had 1,000 or more hours 7/2/2007-12/31/2007, EE would have a second vesting year earned by 12/31/2007.

Whatever the 12-month vesting measurement periods specified by the plan, the EE needs to meet the hour threshold (e.g., 1,000) during that period to have it count as a vesting year. The EE need not worth the entire 12-month period. The EE need not be yet employed on the last day of the 12-month period. You count all service from date of hire--not going into all the twists and turns of re-hire in this answer--except that before the age (e.g., 18 years) specified in the plan.

[GMK]

Agreed.

One consideration with the option is that it is administratively easier to use 1000 hours in the Plan year, so you do not have to keep track of vesting year anniversaries for everyone. Computers can keep track for you, but at the end of the Plan year, you have to check hours in each not-fully-vested participant's "second half" of the year to get their vesting right.

As an aside, we have 1% vesting after 1 YOS (and then 20%, 40%, ...). The vested balance at 1% is small (to some, laughable), but it is something, a beginning, which we find is usually viewed as being better than nothing.

[QDROphile]

But is nothing sacred?

[GMK]

well said, Q.

I don't know if it matters that it's not a church Plan.