accelerated vesting schedule?

[Lori H]

an ESOP that had a 7 year graded schedule, the new restated draft doc states that any participant who has an hour of service after 2006 will now be on a 6 year graded schedule. Is this now the case for all ESOPs who had 7 year graded?

[stephen]

No.

[Guest Sieve]

To expand just a weeee bit . . .

6-year graded is the slowest graduated vesting schedule that can now be in place for a defined contribution plan (including an ESOP). Another acceptable vesting schedule for a dc plan is 3-year cliff (0% in years 1 & 2, 100% after year 3). Anything faster is also obviously permitted. Also, the accelerated vesting schedules can be made applicable only to contributions made with respect to plan years beginning after 12/31/2006.

However, there are special rules for an ESOP which, as of 9/26/2005, had an outstanding loan which had been incurred in order to acquire employer securities. In that case, the new accelerated vesting schedules are not required to apply to any plan year beginning before the earlier of (i) the date the loan is fully repaid, or (ii) the date that the loan was scheduled to be repaid as of 9/26/2005. (See PPA '06, Section 904©(4).)

[Lori H]

sieve, so a non leveraged ESOP that makes a contribution, which this plan does not, must have a 6 year schedule. the draft of the restated doc, mentions nothing of making a contribution after 2006, it just states "provided however, that in the case of any participant with at least one Hour of Service after, 2006, the following normal vesting schedule shall apply...." six year graded.

Your last sentence in your first para has me a bit confused

[Guest Sieve]

If the ESOP is non-leveraged--i.e., there was no loan or the loan was paid off before the amenedment was applicable--then 6-year graded, or better, is required as of the 2007 plan year start (for those with an h/s in the 2007 p/y).

The last sentence in my first paragraph just means that, if you want to track a pre-2007 contribution source & a post-2006 contribution source, then the new accelerated vesting scehdule only has to apply to the post-2006 contributions. But, I don't know any TPAs--or employers--who want to complicate their lives like that. But PPA permits it (PPA Section 904©(1)).

[Lori H]

ok, yes, i recall now that you can have the 2 schedules, but anyone who utilizes them, must like making their life difficult. Let me ask you this: if an ESOP that has no intention of further funding, OUTSIDE REALLOCATE FORFEITURES, past 2006 and will most likely be terminating in the near future, then they can and perhaps should, operate the plan using the 7 year graded?

[Guest Sieve]

Actually, it could be argued that anyone who applies the new vesting schedule only to those who have an hour of service after the effective date of the accelerated vesting schedule is making his/her life difficult, too--it would be much simpler to apply the new schedule to everyone. But, I suspect that most all plans are requiring the h/s in the 2007 plan year.

You should not stay with 7-year graded. I would consider forfeitures to be an employer contribution for purposes of the new vesting schedules, so you have to move to an accelerated schedule--at least to cover the post-2006 forfeitures. Maybe you should be one of those who applies the new vesting schedule only to new $$. But the plan must have a new schedule unless all accounts are fully vested at all times or unless, by plan terms, there can be no more contributions or forfeitures after 2006.

Actually, in the end this may have been mostly an academic exercise because, if you are making no employer contributions (other than forfeitures) for the next few years, then everyone with account balances soon will become fully vested as a result of a complete discontinuance of contributions (or, if sooner, as a result of plan termination).

[Lori H]

Thanks Sieve. I agree. Have a good day.l