Vesting with new plan (have another plan)

[Dinosaur]

A company established a profit sharing plan effective 1/1/2005 with a graded vesting schedule.

The same company establishes a defined benefit plan effective 1/1/2010. Is it permissible for the defined benefit plan to exclude service before the effective date for purposes of vesting?

Note that the profit sharing plan is still active (has not terminated).

[SoCalActuary]

This can be confusing. But my understanding is that a "prior plan" refers generally to a plan that terminated in the past 5 years.

So I would agree that you can start vesting fresh on the DB plan by ignoring prior service.

[John Feldt ERPA CPC QPA]

See Treasury Regulation 1.411(a)-5(b)(3)(v)(B).

A Predecessor Plan is a qualified plan that the Employer terminated within the five-year period beginning before or after the Employer establishes this DB Plan.

So, if the 401(k) plan is terminated within 5 years of the date the DB plan is established, then this DB plan is required to count service before its effective date for vesting. So if the DC plan terminates in 2014, then you go back and fix any partially vested participants in the DB plan who had vesting service excluded before the plan started.

edit: typo

[Andy the Actuary]

Even if you can exclude the service, how would you explain to employees that they have to start over on the vesting schedule? This can only breed ill will.

[John Feldt ERPA CPC QPA]

Exactly. Unless that is also one of the employer's objectives.

[SoCalActuary]

Even if you can exclude the service, how would you explain to employees that they have to start over on the vesting schedule? This can only breed ill will.

Pretty simple: The employer is adding a new benefit, and it costs you nothing. But you have to work xxx years to become vested in it.

Alternative: Use the following complaint form.

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