Controlled Group - vesting

[Belgarath]

Corporation A and B are a controlled group. They have identical separate plans. Participant is partially vested in Corp A plan, then terminates employment with A and moves to B. Account balance remains in the A plan. 

Since all service with all members of the CG is counted for Years of Service, then as long as participant works for B with 1,000 hours each year, the vesting under the A plan will continue to increase, even though participant is no longer working there. Is there any dispensation that I'm missing that would allow vesting in A plan to remain frozen?

[CuseFan]

2 hours ago, Belgarath said:

then terminates employment with A and moves to B

No. You need to view the above as a transfer for all purposes and not a termination, same as going from an eligible employee to ineligible employee in the same plan (think non-union to union status).

[Belgarath]

Thanks, but I want to make sure I am properly understanding what you are saying. When I said he "terminates" employment with A, he does in fact terminate employment with corporation A. I was trying to show the chain of events. I do understand that for qualified plan/controlled group purposes, this isn't a termination from the employer group.

So, are you saying that vesting in Plan A does continue to increase while he is employed by corporation B, or are you saying that it does not increase?

Thanks again!

[david rigby]

It is hasty to insist the word "transfer" is accurate.  For example, Employee terminates employment with Chevrolet, moves to another state, one month later gets a job with Buick; using General Motors (not dealerships) and assumes (only for this example) that each GM subsidiary has its own plan.  That is a real separation of employment, not a transfer.  Such event might trigger a distributable event, but the new hire might change that status.  The important characteristic is to count CG hours of service for purposes of vesting in both plans.  Often, the challenge is to identify such employees/hours, but that's what vesting service requires. 

Note that this might affect more than just vested percent.  Suppose eligibility for Early Retirement (or something else) is based on a minimum years of vesting service, just another reason to identify the CG hours.

[Luke Bailey]

On 2/26/2021 at 12:42 PM, Belgarath said:

So, are you saying that vesting in Plan A does continue to increase while he is employed by corporation B, or are you saying that it does not increase?

Belgarath, it does increase, and I'm sure that is what CuseFan is saying. IRC sec. 414(b) includes IRC sec. 411 in the list of provisions for which the CG is treated as the "employer." IRC sec. 411(a)(4) says for vesting in plan of employer you count all YOS with the "employer," with exceptions not relevant here.

[Belgarath]

Great, thank you. As I said, I just wanted to make sure I wasn't missing anything.