vesting

[Guest le190]

if a plan changes the vesting schedule from a 6 year graded to a 5 year cliff, this is consider a 'less desirable' amendment...correct? if a plan does this, do all current participants become 100% vested, or do they just continue on the old vesting schedule, while new enrollees can be subject to the 5 year cliff? are their any other legal issues i should consider?

thanks.

[Guest]

any employee with three or more years of service must be given an option to choose which vesting schedule he/she wants.

And you can not take away any accrued vesting to-date.

In other words, if you had 3 years of service, you are currently 40% vested.

You may select the 5 year cliff, which means in year 4 you remain 40% vested and then in year 5 you become 100% vested.

or you may simply remain under the old schedule.

people with 2 years of service do not have to be given a choice, so they remain at 20% until year 5 and become 100% vested.

given this scenario, I imagine the following may take place:

ees with 6 years are already 100% vested.

ees with 5 years (currently 80%) will choose the 100% schedule

ees with 4 years (currently 60%) would choose the 100% schedule.

ees with 3 years (currently 40%) would choose the old schedule only if they plan to quit in year 4.

[Guest Dook]

Vesting is a protected benefit and ttherfore, subject to section 411(d)(6). You need not 100% vest all participants, but you must not decrease anyone's vested benefits which are already accrued. The IRS interpretation of this is that you must protect the vested percentage of not only already accrued benefits, but also for any future benefit accruals. Per ERISA Conference Report however, only current accrued benefits must be protected.

Furthermore, participants with at least three years of service with the employer must be given the option of electing to stay on the former vesting schedule.

You may find that it is easier to 100% vest every current participant and apply the new schedule only to new participants who have not yet accrued any benefits under the plan. But as stated you do not have to.

[Guest le190]

thanks so much for the information!