Vesting Schedules, BRF Testing

[LarryDavid]

Are different vesting schedules required to be tested as a benefits, rights and feature?

I assume yes, unless the different schedules each meet the safe harbor requirements.

I have 3 plans within a controlled group:

1.) Immediate Vesting - mainly HCE's

2.) Graded, 1-4 years (25% per year) - mainly NHCE's

3.) Graded, 2-6 years (20% per year) - mainly NHCE's

I'm guessing the above setup doesn't look too good regarding nondiscrimination testing?

If Group 1 switched to a 3-year cliff, then they'd be all set, correct? (Since Group 1 and 3 would then have safe harbor schedules, and Group 2 is better than safe harbor but mostly NHCE).

[QNPG]

Are different vesting schedules required to be tested as a benefits, rights and feature?

I assume yes, unless the different schedules each meet the safe harbor requirements.

I have 3 plans within a controlled group:

1.) Immediate Vesting - mainly HCE's

2.) Graded, 1-4 years (25% per year) - mainly NHCE's

3.) Graded, 2-6 years (20% per year) - mainly NHCE's

I'm guessing the above setup doesn't look too good regarding nondiscrimination testing?

If Group 1 switched to a 3-year cliff, then they'd be all set, correct? (Since Group 1 and 3 would then have safe harbor schedules, and Group 2 is better than safe harbor but mostly NHCE).

Switching Group 1 to a 3-year cliff may still pose a problem at year three when all HCEs are 100% vested and all NHCEs are not. Definitely run BRF test at year three.

[LarryDavid]

Good point.

That actually raises another question: When doing the coverage test for the different vesting schedules, do I look only at the specific service groups that have lower vested %'s? In other words, if I were comparing Group 1 and Group 2 as is (Immediate for Group 1 and 4-year cliff for Group 2), would I only compare the coverage ratios for employees with less than 4 years of service (since all others get the same vested % of 100%?)

This would presumably help my test, since there may not be as many HCE's benefitting in Group 1 if I'm only looking at those ee's with less than 4 years of service.

[QNPG]

Good point.

That actually raises another question: When doing the coverage test for the different vesting schedules, do I look only at the specific service groups that have lower vested %'s? In other words, if I were comparing Group 1 and Group 2 as is (Immediate for Group 1 and 4-year cliff for Group 2), would I only compare the coverage ratios for employees with less than 4 years of service (since all others get the same vested % of 100%?)

This would presumably help my test, since there may not be as many HCE's benefitting in Group 1 if I'm only looking at those ee's with less than 4 years of service.

After more careful consideration, I realized that no 401(a)(4) testing is required for a controlled group with the two vesting schedules described in the following reg as they're deemed to be equal: Please refer to §1.401(a)(4)-11.