A mutual fund company fully vests participants receiving discretionary matching in a former Safe Harbor Plan

[CharlesLeggette]

I think Jim Holland may have opined on this at the ASPA 1999 Q & A Session ---

A 401(k) Plan complies with the nondiscrimination rules for one or more years by using a safe harbor matching formula. Prior to beginning of next year, it elects to not use the safe harbor rules. The employer adopts a discretionary matching formula and informs participants accordingly. May the employer use a graded vesting schedule with respect to matching contributions made after the change to a non-safe harbor plan (giving credit for all prior service) or must the participants who were covered by the safe harbor formula continue to be fully vested in future discretionary contributions?

The mutual fund company states the employees who were in the Safe Harbor Plan must all now be fully vested in the new discretionary matching accounts…..their record keeping system keeps all these in different source buckets, so there's no co-mingle issue.

what?????

Is this correct????

I either want to laugh or cry.

[ETA Consulting LLC]

The mutual fund company is mistaken. The regulatory requirements for non-safeharbor 401(k) match are different that those from Safe Harbor 401(k) Match. The Safe Harbor Match is a qualified employer contribution (the same as a QNEC, QMAC, SHNEC) and required 100% vesting at the time of deposit. A regular discretionary match is different. If you were to look at any preapproved prototype document, you can see the difference between the two written with the plan terms.

HOWEVER, if for some reason the practitioner actually completed the vesting for regular matching contributions as 100%, then you would be precluded from changing that schedule for any employee with at least 3 years of vesting service. On prototypes, there are no areas to select vesting for safe harbor contributions as the vesting is hardwritten in the plan's terms. Hence, the vesting section is for the non-safe harbor match.

Good Luck!