Vesting service prior to effective date of the plan

[thepensionmaven]

I should know the answer, but I see conflicting answers.

EOB mentions all service must be counted for vesting purposes; although I noticed the following when I queried online:

"Although all service from date of hire must be recognized for eligibility, a plan can be written to ignore years prior to its effective date (or the effective date of any previous plans) and/or years prior to attainment of age 18 for vesting purposes."

I was asked to look into having a new plan drafted under the second criteria, now not sure.

[Rafael]

Take a look at Ch. 4, Sec. IV Part E.2.b in the EOB. See also IRC 411(a)(4)(A).

[Bri]

As an aside - how would you apply the rule in the year you turn 18?  What if the hours are before your birthday, but it's the calendar year that you turn 18 in November, as opposed to February?

[C. B. Zeller]

I don't have a reference to back me up, but I think you would consider a year of service to be "completed" on the last day of the year in question. So, for the year during which you turn 18, the year is completed after the attainment of age 18, therefore it would be counted. If your birthday is December 31 I think you still count it.

[Tom Poje]

even in a short plan year you are still required to look at a 12 month period. so just because he wasn't age 18 I don't see any difference. by the way, if the person in question was age 25 and didn't enter until 7/1 due to entry dates, would you also say 'he wasn't eligible so I can exclude hours prior to the entry date"?

Labor Reg. § 2530.203-2(a) and (c)

a)Designation of vesting computation periods. Except as provided in paragraph (b) of this section, a plan may designate any 12-consecutive-month period as the vesting computation period. The period so designated must apply equally to all participants. This requirement may be satisfied even though the actual 12-consecutive-month periods are not the same for all employees (e.g., if the designated vesting computation period is the 12-consecutive-month period beginning on an employee's employment commencement date and anniversaries of that date). The plan is prohibited, however, from using any period that would result in artificial postponement of vesting credit, such as a period measured by anniversaries of the date four months following the employment commencement date.

c) (1) A plan may be amended to change the vesting computation period to a different 12-consecutive-month period provided that as a result of such change no employee's vested percentage of the accrued benefit derived from employer contributions is less on any date after such change than such vested percentage would be in the absence of such change. A plan amendment changing the vesting computation period shall be deemed to comply with the requirements of this subparagraph if the first vesting computation period established under such amendment begins before the last day of the preceding vesting computation period and an employee who is credited with 1,000 hours of service in both the vesting computation period under the plan before the amendment and the first vesting computation period under the plan as amended is credited with 2 years of service for those vesting computation periods. For example, a plan which has been using a calendar year vesting computation period is amended to provide for a July 1-June 30 vesting computation period starting in 1977. Employees who complete more than 1,000 hours of service in both of the 12-month periods extending from January 1, 1977 to December 31, 1977 and from July 1, 1977 to June 30, 1978 are advanced two years on the plan's vesting schedule. The plan is deemed to meet the requirements of this subparagraph.

[david rigby]

As I recall, the IRS reg. for 411 was written when the age reference was 22 (originally in ERISA), later changed to age 18 (TRA86?) but the reg. was never revised.  In that reg., the year of attaining age 22 should be included in vesting service.  My recall may be incorrect, but likely the questioner is able to locate and read that reg. for him/her self.

[NJ Mike]

See the following:

https://www.irs.gov/pub/irs-pdf/p6389.pdf

On page 4 -

Line l. In general, for vesting purposes, count all years of service with the employer who maintains the plan. However, there are several exceptions to this rule. Years of service before an employee reaches age 18 may be excluded. If a plan uses a vesting computation period, count the vesting computation period in which an employee becomes 18 as a year of service. If a plan uses elapsed time, count the period after the employee became 18 when figuring the employee’s period of service. Except for top-heavy years, a contributory plan that uses a vesting computation period may exclude a year.

Mike