Cash Balance and Profit Sharing Plan Vesting Question

[Guest Mikk]

With regard to a Profit Sharing Plan that is combined with a Cash Balance Plan - does the vesting schedule under the Profit Sharing Plan have to be a 3-year 100% vested schedule because it is combined with the Cash Balance Plan or can the Profit Sharing Plan keep its 6 year graded vesting schedule?

I'm getting conflicting information and need some help.

Thanks.

[JAY21]

I can't give you a cite for it but at a recent ASPPA conference this summer in one of the discrimination testing sessions it was mentioned that the IRS is willing to consider the 3-year cliff equivalent to the 2/20 vesting schedule so that the DC plan wouldn't have to change to the 3-year cliff. Again, just the presenter's view but he sounded up on the subject.

[Blinky the 3-eyed Fish]

The logic in that response is of course that both are "equivalent" vesting schedules so there should be no inherent discrimination. I have kept them different in plans that I have designed. I haven't had the issue raised from the IRS when the CB plans were submitted, but that doesn't necessarily mean a general thought on the subject.

I heard heard different views though, one I see to recall from Holland, but it's a vague memory.

[Guest VEBAPLAN]

Incorrect

[masteff]

Incorrect

The original question was an "A or B" question, not "correct or incorrect"... could you please be more clear as to what you're stating is incorrect (or are you simply planning to chase Blinky around the board and make vague contradictions to anything he posts?)?

[Blinky the 3-eyed Fish]

I think VEBA is good for these boards. We need guys next to expensive automobiles striking "success" poses. We need the valuable information in the articles posted, so valuable indeed that they are posted again and again so we don't miss the value. We need inane postings of profile information. We need grade school "nah uh" contridictions to posts, being called nerds and being told by a 60-year old we can't hang in a weekly football game.

Okay, maybe we don't, but we do need a good laugh and source of amusement, so I am certainly enjoying it all.

[AndyH]

This looks like fun, like the old days (the 412(i) guys are always fun).

Blinky, don't you know who you are dealing with? Don't you know who he knows?

He is after all "the nations leading expert on pensions" (among many other things)

[JBones]

I think the cite you're looking for is §1.401(a)(4)-11©(2) which allows for deemed equivalence of statutory top heavy schedules under 416(b)(1)(A) - 3 year vesting - and 416(b)(1)(B) - 6 year graded vesting.

§1.401(a)(4)-11. Additional rules

© Vesting-- (1) General rule. A plan satisfies this paragraph © if the manner in which employees vest in their accrued benefits under the plan does not discriminate in favor of HCEs. Whether the manner in which employees vest in their accrued benefits under a plan discriminates in favor of HCEs is determined under this paragraph © based on all of the relevant facts and circumstances, taking into account any relevant provisions of sections 401(a)(5)(E), 411(a)(10), 411(d)(1), 411(d)(2), 411(d)(3), 411(e), and 420©(2), and taking into account any plan provisions that affect the nonforfeitability of employees' accrued benefits (e.g., plan provisions regarding suspension of benefits permitted under section 411(a)(3)(B)), other than the method of crediting years of service for purposes of applying the vesting schedule provided in the plan.

(2) Deemed equivalence of statutory vesting schedules. For purposes of this paragraph ©, the manner in which employees vest in their accrued benefits under the vesting schedules in section 411(a)(2)(A) and (B) are treated as equivalent to one another, and the manner in which employees vest in their accrued benefits under the vesting schedules in section 416(b)(1)(A) and (B) are treated as equivalent to one another.