Vest a source that wasn't allowed? Updating vesting

[401king]

We are restating a plan from Paychex to our DATAIR document software. The Paychex adoption agreement did not allow matching contributions, but states that matching contributions are 100% vested. Further, their vesting section does not have the option to state, "Not applicable."

We are amending the plan to allow for discretionary match, and giving it a 2/20 vesting schedule, but I'm not sure what to do about the current participants' vesting.

Can you attach a vesting schedule to a source that wasn't allowed in the first place? If not, then I assume I can attach the 2/20 schedule to all participants. Otherwise, they are subject to the 100% vesting schedule, even though contributions of that source were not allowed.

[Guest A_Dude]

Wouldn't participants be credited with past participation (ie. most participants are likely would be 100% vested or close..) in the plan? If it did not allow matching contributions to begin with it is likely that is their defualt answers. The vesting would not be applicable, because the the matching provisions (have been turned off), so yes you can turn matching "on" and attach any schedule you like.

If matching contributions were allowed and the schedule was being changed from 100% to a 2/20 you would need to track the matching contributuons seperately because of anti-cut-back rules, and most likely almost everyone would 100% vested still because of they meet the service requirements.

[401king]

Participants would be credited, yes, but many would still not be fully vested under a 6-year schedule. I felt the same about it being a default option, but I am not entirely confident that a scrutinizing auditor would view it as a technical oversight.

[Guest A_Dude]

I think you're over thinking this. All you would need to do is show the past document and say if there were/are no matching contributions allowed, how could there be a vesting schedule? If the source doesn't exist, there would be no vesting schedule. An anyways, you can change the vesting schedule. The only thing you cannot do is take a source where the participant is 100% vested and all of the sudden make their previous money 80% vested. You can make their new matching contributions 80% vested though (just not advised from an HR standpoint).

[Tom Poje]

while you may change a vesting schedule, anyone with 3 or more years of service has to be given the choice of the old vesting schedule or new vesting schedule. IRC 411(a)(10)(B).

now, lets suppose for ADP/ACP testing you choose the default (prior year testing). would you argue you can use 3% first year look back or not? I'd think the answer would be yes, and conclude (possibly incorrectly) that the old document made no sense in saying match was 100% vested when in fact it didn't even exist.