can a change in vesting schedule affect a terminated employee?

[Gudgergirl]

Plan has 6 year graded vesting schedule.

Employee terminates employment with 4 years of service for vesting purposes and is thus 60% vested in his account.

Employee does not request a distribution of his account balance.

Later, the plan is amended to shorten the vesting schedule to 4 years.

The effective date of this amendment is after the employee's date of termination.

The now former-employee claims he is now 100% vested because he has 4 years of vesting service and wants a distribution of his entire account.

Is former employee correct?

Does it matter whether former employee had incurred 5 consecutive one year breaks in service before the effective date of the amended vesting schedule?

[SFSD]

Vesting stays as is as of termination date and amendment does not affect it. EE has to be an employee when plan is amended.

[John Feldt ERPA CPC QPA]

The document and its amendments will answer this one. Usually, an amendment that provides improved vesting is also written such that it only applies to employees who have at least one hour of service with the employer after the amendment's effective date.

[ESOP Guy]

it really depends on how the amendment was written. A carefully written amendment will say who the change effects. You would like to see some thing like this in the wording, "this vesting schedule applies to anyone who worked 1 hour after xx/xx/xxxx".

A poorly written one will just say all participants as of xx/xx/xxxx use the new vesting schedule. If it reads like that the terminated person has a much stronger case. A terminated person with a balance is still a participant and if that was true as of xx/xx/xxxx a simple and literal reading says they are 100% vested now.

So read the amendment carefully.

[My 2 cents]

The document and its amendments will answer this one. Usually, an amendment that provides improved vesting is also written such that it only applies to employees who have at least one hour of service with the employer after the amendment's effective date.

The well-written ones, anyway. What is the answer if the amendment just changes the schedule as of the amendment's effective date and says nothing about former employees or hours on or after or anything?

[John Feldt ERPA CPC QPA]

Well, then in that case I have seen some documents that have a "Lazy Amendment Writer" clause, and inside the plan document somewhere you might find a paragraph that says something like:

If the vesting schedule is amended, the new schedule only applies to participants with one hour of service after the effective date of such amendment unless the amendment specifically provides otherwise.

Absent that, I think you look to the section that gives authority to someone to interpret the provisions of the plan (usually the Plan Administrator). Then have them use that authority.

[ESOP Guy]

The document and its amendments will answer this one. Usually, an amendment that provides improved vesting is also written such that it only applies to employees who have at least one hour of service with the employer after the amendment's effective date.

The well-written ones, anyway. What is the answer if the amendment just changes the schedule as of the amendment's effective date and says nothing about former employees or hours on or after or anything?

I for one think they are stuck and have to give the wind fall to the terminated person if they just talk about the effective date. If someone is mad look to the person who drafted the amendment. Being careful and drafting it to only include people who worked 1 hour after a given date is vesting amendment writing 101 and I find the sloppy writers learns the hard way only after making the sloppy mistake once.

[Kevin C]

Does it matter whether former employee had incurred 5 consecutive one year breaks in service before the effective date of the amended vesting schedule?

Plan documents typically say that partially vested terminated participants forfeit the non-vested portion of their account upon the earlier of distribution or incurring 5 consecutive breaks-in-service. If this person had more than 5 consecutive BIS before the effective date of the amendment, he should not have any non-vested amounts in his account balance that could possibly be affected by the amendment. What does the plan say?