Quarterly vesting

[Dan]

A client is instituting a match for the first time. They requested the plan implement a quarterly vesting schedule.  I have never heard of quarterly vesting. I asked a few colleagues and no one has heard of it.  Has anyone here heard of this before?  If you have, can you explain how it works or where I could learn more about it.

The plan is currently being restated on a pre-approved document, which offers the standard vesting options. I expect a quarterly vesting structure would be permissible on a custom document.  So, we could modify the pre-approved document and treat it like a custom document going forward. Any thoughts about that?

[Bird]

No. Start by asking what they are trying to accomplish.

[CuseFan]

Yes, you need to have a detailed conversation with the client. Plan sponsors say things incorrectly all the time using retirement plan terminology that they do not understand. I still have many a client that refers to their safe harbor non-elective and/or profit sharing in their 401(k) plan as a match.

The only thing that comes to mind for this is quarterly vesting computation periods, for example, you vest 5% for 250+ hours in a quarter rather than 20% for 1000+ hours in a year? Doubt pre-approved plan has specific accommodation, don't know if such a modification would cause it to lose reliance. Regardless, I think you would have to have a 1000 hour annual vesting provision override, so if someone was +250 for only three quarters but still +1000 for the year, they would have to vest 20% rather than 15%. Interesting concept if that's what they're thinking, but have fun administering!

[ESOP Guy]

4 hours ago, CuseFan said:

Yes, you need to have a detailed conversation with the client. Plan sponsors say things incorrectly all the time using retirement plan terminology that they do not understand. I still have many a client that refers to their safe harbor non-elective and/or profit sharing in their 401(k) plan as a match.

The only thing that comes to mind for this is quarterly vesting computation periods, for example, you vest 5% for 250+ hours in a quarter rather than 20% for 1000+ hours in a year?

Or as you say they don't use the terms right.   They could be simply asking for you to make sure if a person gets to 1,000 cumulative in any given quarter and leave their job they get vested in the current year.  

[david rigby]

Or maybe they mean 4-yr vesting?  Or something else.  If they do mean the 5%/250 hours as mentioned above, don't forget to describe the additional fee you will charge to administer it.  At any rate, the suggestion above by @Bird is the correct approach.

[bito'money]

When your client drinks too much tequila on Cinco De Mayo, the next morning they may end up seeing double double and start asking about the feasibility of quadruple vesting.  After they sleep it off over the weekend, maybe you can talk them out of this awful idea. 😀

[Bob the Swimmer]

Quarterly vesting is somewhat common in the stock option area, particularly in Silicon Valley plans. 

Perhaps someone is misapplying that concept to retirement plans ?

[acm_acm]

Quote

 

I believe the prescribed vesting rules are a minimum, so one could vest quicker, say 0.25 of vesting service for each quarter worked.

 

You would still need to determine vesting the traditional way to make sure the minimum isn't violated.  The minimum type (cliff versus graded vesting) probably needs to be stated in the plan document.

[Dan]

Thanks for your replies.