Adding a Full Vesting Requirement to In-Service Distributions

[ERISA1]

I am pretty sure I know that the following is a prohibited cutback of a protected benefit under 411(d)(6). Do you agree?

Plan allowed in-service distributions of vested profit sharing amounts at age 59.5. Sponsor wants to amend so as to require participants be 100% fully vested before they can take an in-service distribution.

The sponsor cannot do this; agreed?

[Lou S.]

Yes and no. You'd have to track the pre-amendment partially vested funds and allow those to be available for in-service distribution.

It might be administratively unfeasible to track but you can do it without it being a cut-back.

[ESOP Guy]

A version that might be a little easier to administrate that will get the sponsor to where they want to go in time would be to do something like this:

Amend the plan to say any employee hired (or enters the plan) on or after 1/1/2016 can only take an in-service distribution if they are 100% vested.

Within a few years the people hired before that date ought to be 100% vested (assuming most employees are full time) and you have an easy way to track people and balance that the new provisions apply.

Note if this sponsor has lots of re-hires this would be a pain also.