Counting prior service forever?

[AlbanyConsultant]

My client is law firm "G", which was formed when G and his buddies left law firm "D" in 1997. When they started a retirement plan a couple of years later (not with us), their plan said to count service with D for all purposes (eligibilty, vesting, allocations, etc.). We took the plan over two years ago, and in the PPA restatement said the same thing.

Now there is a new employee of G who was previously an employee of D. The thing is, she was hired by D in 2005 - years after the split.

Is there some kind of 'reasonableness' (ha!) standard on this? Obviously, the plan sponsor doesn't think this new employee should get the benefits of working for basically a competitor. Or do we have to amend it prospectively to only count service with D through 1997 and just know that one 'got through'? Can we even write an amendment like that?

If it helps, I'm using a PPA Datair volume submitter adoption agreement format document.

Thanks.

[Lou S.]

If the plain language of the document says you credit service, then you credit service.

If the document was drafted to say yeas of service at "D" prior to 1997 are credited, you would credit service for all years before 1997.

If the document says employees of "G" hired in 1997 shall receive service credit for time at "D" prior to 1997 then that's how you apply it.

At least that's my understanding but I am not a lawyer.

[QDROphile]

Lou S. is correct and an intelligently drafted document would have provisions that would make it unnecessary for you to be concerned about the circumstances if the intent was only to accommodate the early migration from D to G.

[david rigby]

.... but the document might not say what was intended, in which case the principal(s) should consider a prospective amendment to clear up the confusion.

[My 2 cents]

.... but the document might not say what was intended, in which case the principal(s) should consider a prospective amendment to clear up the confusion.

...so that if G hires anyone else in the future who had worked for D, their service with D would not count? Or is the prospective amendment supposed to exclude any service with D occurring after the effective date of the prospective amendment?

If the "prospective" amendment is supposed to keep the new employee from receiving any credit for the service she had completed with D prior to her employment by G, well, to quote from The Princess Bride, "You keep using that word. I do not think it means what you think it means."

I may be getting cynical, but isn't it almost a given that documents might not say what was intended?

[david rigby]

I think the sponsor must first address the second and third "If..." sentences in Post #2, in light of what was intended. My reference to "prospective" is that the sponsor should then amend the plan to incorporate the intent, for any future new hires.

[AlbanyConsultant]

The basic plan document language is:

If elected in the Adoption Agreement, service for a predecessor to the Employer, whether as an Employee or a Self-Employed Individual, will be treated as service for the Employer. If the Employer maintains the plan of a predecessor employer, service with such predecessor shall be treated as service for the Employer.

If elected in the Adoption Agreement, service with a prior employer whether as an Employee or a Self-Employer Individual will be treated as service for the Employer for legitimate business purposes so long as the grant of such service does not discriminate in favor of Highly Compensated Employees. Service with a prior employer shall be limited to 5 years.

And the adoption agreement says:

A7. Service with Predecessor Employers/Prior Employers - Service with Predecessor Employers is treated as service for the Employer, if the Employer maintains the plan of the Predecessor Employer. In all other cases, predecessor service is granted as specified below. Where applicable, identify the Predecessor Employer(s) and any document(s) that provide(s) for the crediting of service with such predecessor(s).

...

c. The Plan credits service with prior employers as specified in this item c.

Service with the following prior employers shall be credited as service under this Plan: "D"

Such service credit will be limited to 5 years, and will be counted for [selected: eligibility, vesting, allocations, attainment of NRA].

And, for completeness, I got this response when I asked Datair:

There is nothing in the plan document that indicates you can or cannot put a limitation date on the predecessor service. It is my understanding, if you list a predecessor employer, you have to credit service to all employees who have worked for that predecessor employer regardless of when they worked for that employer.

The second sentence there is a bummer, but it sounds like there is room to argue that point, and I think it's a point worth arguing.

I intend on amending the AA effective now to say that only service with D through the date of the split is counted in D's plan, essentially changing A7c to say "D (only service prior to 1/1/98 will be counted)". I can't go back and take away service from anyone who was already credited, but at least this will stop the issue from continuing. If I apply it only going-forward, it shouldn't affect any current participants, so I think I'm in the clear on this.

Thanks, and any further thoughts are always welcome.

[My 2 cents]

Being done in a way that will not deny Ms. Hired-by-D-in-2005 credit for her service (up to 5 such years) with D, right?

[AlbanyConsultant]

Yes; effective for those hired going forward.