Vesting

[wifrbr]

Plan has 3 year cliff vesting

Employee A

Hire 4/28/16

Term 4/26/19

two days shy of 3 years but did work 1000 hours in 2016, 2017, & 2018.  I say they get credited for 3 years.   

From document:

1.109 "Year of Service" means the computation period of twelve (12) consecutive months, herein set forth, and during which an Employee has at least 1,000 Hours of Service. However, the Employer may amend the Plan to provide a lesser number of Hours of Service in a Plan amendment for eligibility purposes, vesting purposes, or accrual purposes without adversely affecting the Plan's reliance on the IRS advisory letter.

For purposes of eligibility for participation, the initial computation period shall begin with the date on which the Employee first performs an Hour of Service. The participation computation period shall shift to the Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service. If there is a shift to the Plan Year, then an Employee who is credited with the required Hours of Service in both the initial computation period and the Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service, shall be credited with two (2) Years of Service for purposes of eligibility to participate.

A Year of Service for eligibility purposes is not credited until the end of a participation computation period.

For vesting purposes, the computation periods shall be the Plan Year, including periods prior to the Effective Date of the Plan.

The computation period shall be the Plan Year if not otherwise set forth herein.

Notwithstanding the foregoing, for any short Plan Year, the determination of whether an Employee has completed a Year of Service shall be made in accordance with Department of Labor regulation §2530.203-2(c). However, in determining whether an Employee has completed a Year of Service for benefit accrual purposes in the short Plan Year, the number of the Hours of Service required shall be proportionately reduced based on the number of full months in the short Plan Year.

[MoJo]

What's the plan year?  I assume for the following that it is a calendar year.  The way I read the document, from  4/28/16 to 4/27/17, if they had 1000 hours, that is one year of vesting service.  Then shifting to plan year, from 1/1/17 to 12/31/17 is another computation period - and if 100 hours are credited, that is two years of vesting service.  Do the same for 1/1/18 to 12/31/18 - and if ... then three years vesting service.  Doesn't matter when they term in 2019....  If the plan year is not the calendar year - then the principle is the same, but the numbers may be different.

I started work on 4/18/16, and with a 5 year cliff (DB plan), I vest on 7/1/20 (using the equivalency method based on months).  Same analysis.

[wifrbr]

yes plan year is calendar year, thanks 

 

Can you base vesting on the anniversary date?  

[duckthing]

MoJo, I don't see the "shifting to plan year" in the document section that was quoted. It says that for vesting purposes the computation period is the plan year. I think you'd generally only see an 'overlap' where service counts toward two computation periods like this in the case of a short plan year. Same ultimate outcome though.

wifrbr: Yes, if the document says the computation period is a twelve-month period that lines up with anniversaries of hire date, that's fine too.

[MoJo]

2 hours ago, duckthing said:

MoJo, I don't see the "shifting to plan year" in the document section that was quoted. It says that for vesting purposes the computation period is the plan year. I think you'd generally only see an 'overlap' where service counts toward two computation periods like this in the case of a short plan year. Same ultimate outcome though.

wifrbr: Yes, if the document says the computation period is a twelve-month period that lines up with anniversaries of hire date, that's fine too.

You are right - there isn't a shift.  My analysis then would be if they got 1000 from the date of hire (April 28) through the end of the year, then that first year would count as year one of vesting service.

Sorry.  I'm confusing myself..... (which happens way too often these days).

[Pam Shoup]

Based on the plan language from above,

If the participant worked at least 1,000 hours from 4/18/16 to 12/31/16 - credit one year of service.

If the participant worked at least 1,000 hours for calender 2017 - credit one year of service.

If the particpant worked at least 1,000 hours for calendar 2018 - credit one year of service

If the participant has three years of service credited, they are 100% vested with a 3 year cliff vesting schedule. 

 

[Doc Ument]

With regard to "shifting" and what to do when the 1,000th hour is met, the rules for eligibility and vesting can have dissimilar results. The first eligibility computation period (ECP) must be the 12-month period beginning on the date of first hire for all plans. So a plan that wants to use the plan year for eligibility must "shift" to the PY after that first ECP to that first overlapping PY. That is not necessary for vesting, i.e., the first vesting computation period (VCP) does not need to be the first 12 months after the date of hire (although it can be), so there does not need to be any shifting or any overlap (a plan can use the PY for vesting without regard to when during the PY the employee is hired). Also, even when plan is silent, many practitioners do not credit a YoS for eligibility until the last day of the ECP. One reason is that the employee can't enter the plan if they leave during the first ECP and never come back, even if they have the 1,000 hours. In contrast, for vesting, once the 1,000th hour is credited, there is no point in not vesting at that point, i.e., there is no reason to wait until the end of the VCP as the vesting credit will need to be credited no later than the end of the VCP anyway (you don't need to be employed to get the vesting credit).  If you were to pay out immediately at the 1,000th hour without giving credit for that YoS, then you will end up needing to make another distribution to supplemental the first distribution to reflect the higher vesting percentage at the end of the VCP of severance.

Everything above is subject to specific plan language to the contrary.   For example, a document might have more specific provisions, such as plan entry upon when the 1,000th HoS is credited during an ECP, or perhaps even a "parallel" track for shifting the VCP so that each VCP coincides with each ECP.  The text of the first paragraph of this response is intended only to illustrate how and why the YoS requirement will often play out differently for eligibility than for vesting for many plans that, despite the seemingly odd results, are fully compliant with the Code.