Vesting Schedule Change

[JKW]

I have a plan that changed its vesting schedule in 2009 from a 6 year to a 4 year.

If a participant had left, say in 2006, and requested a distribution in 2010 or 2011, do we use the vesting percent that they had at the time of termination or does the new vesting schedule apply? The document does not give any clarification.

[ESOP Guy]

Based on what you are saying the document does answer your question. As of that date in 2009 the vesting sch is a 4 year sch. They could have written the amendment to exclude people who terminated before the date the amendment was adopted. Since they did not exclude them from the new sch they are included in it. This person gets the new sch as that is the only sch in the plan as of the date of payment.

[rcline46]

Not quite ESOP guy. Most schedule changes are written something like 'for anyone with an hour of service....". I agree it is a document issue, and the amendment and the document language which speaks to vesting amendments have to be interpreted.

Whenever we have amended schedules, we made is clear it only affected EMPLOYEES and not just any PARTICIPANT.

[Guest Sieve]

Instead of just checking the vesting provisions of the plan, I'd also check the Misc/Admin/Other provisions of the plan, because often a plan will provide that a terminated employee is covered only by the provisions of the plan which were in effect on his/her date of employment termination.

However, contrary to rcline, I've seen lots of docs which apply vesting changes (i.e., a more accelerated vesting schedule) to everyone in the plan, so that there is only 1 vesting schedule floating around.

[ESOP Guy]

Not quite ESOP guy. Most schedule changes are written something like 'for anyone with an hour of service....". I agree it is a document issue, and the amendment and the document language which speaks to vesting amendments have to be interpreted.

Whenever we have amended schedules, we made is clear it only affected EMPLOYEES and not just any PARTICIPANT.

For what it is worth Rcline46 I agree with you that is how most amendements I see would be written.

I simply took the queston at face value when it says:

The document does not give any clarification.

In fact I don't understand why one wouldn't write it they way you suggest. Why give a gift to a former employee.

Edit:

Although the idea of having only one sch might make sense. But even back when I worked with plans with thousands of employees that seemed like the least of our problems was having two vesting sch.

[GMK]

JennKW - First check Sieve's comments in post #4, above. If the Misc provisions of the plan specify how inactive participants are affected or not affected by amendments, then you'll want to follow the plan.

Otherwise, as noted by others, the amendment shoulda said whether or not vesting changes apply to former employees.

Seems like a thing about which the plan administrator has to make a reasonable decision. Perhaps there is documentation of discussions at the time of the amendment regarding the intended effect on inactives.

Our amendment to shorten the vesting schedule kept former employees on their original vesting schedule. Since we have forfeiture after five one-year breaks in service, former employees eventually become 100% vested in their non-forfeited balance, and the whole issue becomes academic.

[JKW]

Thank you all.