Vesting & Service Crediting Change from all years of service to effective date of paln

[AdKu]

A client established a brand new 401(k) plan effective 1/1/2016. According to this new plan, plan document,

· All service with the employer were counted for all purposes

· Service crediting methods for all purposes was elapsed time method

· Eligibility was 1 month and entry with 1^st day of the month following or coinciding for all contributions

· 2/20 vesting schedule

Six month later, 7/1/2016, this client decided to change the TPA and add a New DB plan. To simplify the combo plan testing, the new TPA changed Service crediting method with ultimately affected the vesting. According to the restated 401(k) plan, plan document

· Service from the effective date of the plan were counted for all purposes

· Service crediting methods for all purposes become Hours of Methods

· Eligibility stays the same for deferral but changed to 1 YOS with dual entry, 1^st & 7^th month, for Employer contribution

· 2/20 vesting schedule

The client financial advisor suggested it is ok to go with the restated vesting since this is the new plan.

I have hard time to buy client’s financial advisor suggestion in light of IRC §411(d)(6) anti-cutback Regulations. The reason is that 90% of the employees had at least 1 year of service and entered to the plan on the effective date of the plan, 1/1/2016.

I would think all full-time employees/plan participant will have at least 20% in their employer contribution by 12/31/2016.

Is this not the case?

[Lou S.]

In the 401(k) you are correct you have anti-cutback issues with vesting years if you ignore the original document.

Oh and if they added a DB I'm betting these plans are top heavy and the 1 month of service 401(k) eligible employees are likely going to need a TH-minimum and I think a gateway contrib too.

[401king]

It was only a new plan once; would the advisor think it's a new plan after 9, 10, 12 15 months of being in existence? Your instincts are correct that you can't reduce someone's vested percentage, but you can make those participants grandfathered into the old schedule where all of their service gets counted. I wonder how many days the plan has to exist before the financial advisor does not consider it a "new" plan.

In fairness, Financial Advisor generally doesn't encompass the minutiae of 401k plan rules, but his 401k recommendations should be filtered through a 401k administrator before being effective. The fact that the new TPA made the change makes me think that maybe they did it on a pro-active basis, where current participants were not affected.

[AdKu]

Thanks all