Switching from elapsed time to counting hours for vesting

[Rai401k]

We have a plan that used elapsed time for vesting, however effective 1/1/2015 the plan was amended to change vesting to counting hours. The vesting schedule was also amended from a 6 year graded to 25% a year effective 1/1/2015.

If we have a participant that was hired 6/13/2011 for example (this is a calendar yr. plan) what would there vesting be as of 1/1/2015.

Based on elapsed time the vesting prior to 1/1/2015 was:

6/13/2011-6/13/2012 - 1 year

6/13/2012-6/13/2013- 2 years

6/13/2013-6/13/2014 - 3 years

Prior to the amendment this person would be 40% vested.

Does this person become 75% vested on 1/1/2015 (based on 3 years) OR is this person now 100% vested since it's counting hours. In other words since we changed it to hours do we now look at the fact that this person would have 4 years of service as of 1/1/2015 (2011,2012,2013,2014 - lets assume this person is full time and would have completed 1,000 hours in all years).

[BG5150]

What is the vesting computation period in the plan document? Often, it is the plan year. So your periods for this person would be:

1-1-11 to 12-31-11

1-1-12 to 12-31-12, etc

Or, if using elapsed time, you always use employment anniversaries?

[Tom Poje]

I'm guessing you might have to treat the person as having 4 years.
Let's say I had a 6/30 pYE. At 6/30/14 he has 3 years.
If I amended to a short plan year, ending 12/31/14 he would get credit for the period 1/1 - 12/31 (even though that results in some hours getting twice.) otherwise you have a period from 6/13 - 12/31 (in your example) that is not counted at all. I have a problem with that.
see Labor reg example below. I don't see how this is any different.
§ 2530.203-2 Vesting computation period.
(a) Designation of vesting computation periods. Except as provided in paragraph (b) of this section, a plan may designate any 12-consecutive-month period as the vesting computation period. The period so designated must apply equally to all participants. This requirement may be satisfied even though the actual 12-consecutive-month periods are not the same for all employees (e.g., if the designated vesting computation period is the 12-consecutive-month period beginning on an employee's employment commencement date and anniversaries of that date). The plan is prohibited, however, from using any period that would result in artificial postponement of vesting credit, such as a period meassured by anniversaries of the date four months following the employment commencement date.

(b) Plans with 3-year 100 percent vesting. For rules regarding when a participant has a nonforfeitable right to his accrued benefit, see section 202(a)(1)(B)(i) of the Act and section 410(a)(1)(B)(i) of the Code and regulations issued thereunder.

© Amendments to change the vesting computation period.

(1) A plan may be amended to change the vesting computation period to a different 12-consecutive-month period provided that as a result of such change no employee's vested percentage of the accrued benefit derived from employer contributions is less on any date after such change than such vested percentage would be in the absence of such change. A plan amendment changing the vesting computation period shall be deemed to comply with the requirements of this subparagraph if the first vesting computation period established under such amendment begins before the last day of the preceding vesting computation period and an employee who is credited with 1,000 hours of service in both the vesting computation period under the plan before the amendment and the first vesting computation period under the plan as amended is credited with 2 years of service for those vesting computation periods. For example, a plan which has been using a calendar year vesting computation period is amended to provide for a July 1-June 30 vesting computation period starting in 1977. Employees who complete more than 1,000 hours of service in both of the 12-month periods extending from January 1, 1977 to December 31, 1977 and from July 1, 1977 to June 30, 1978 are advanced two years on the plan's vesting schedule. The plan is deemed to meet the requirements of this subparagraph.

(2) For additional requirements pertaining to changes in the vesting schedule, see section 203©(1) of the Act and section 411(a)(10) of the Code and the regulations issued thereunder.

[Rai401k]

BG5150 it was elapsed time - anniversary to anniversary.

I think I agree with you Tom