QACA Vesting Schedules

[AJ North]

I am working on a plan that has a QACA.  The plan has one group of participants hired before a certain date as 100% vested in the QACA match.  The group of participants hired after that same date is subject to a 2 year cliff schedule for the QACA match.  Is this permissible?  The two groups do not fall under the permissible disaggregation rules as the difference is based on hire date only.  Any thoughts?

[justanotheradmin]

well typically its tied to the contribution year, and not a particular participant group. 

For example, if the QACA was originally written as 100% immediate vested. But then effective 1/1/2025 (for a calendar year) there is an amendment making it on a 2 year cliff. it needs to be clear though as there there are different ways to slice and dice. 

In my example, all of the QACA accrued for 2024 and earlier is 100% vested, and any QACA contributions for 2025 and future years is subject to the 2 year cliff. 

This does mean folks who have been there awhile will be 100% vested no matter what if they have enough vesting service, and newer folks will always be subject to the 2 year cliff, but that happens over time anyways. 

[Bill Presson]

43 minutes ago, justanotheradmin said:

well typically its tied to the contribution year, and not a particular participant group. 

For example, if the QACA was originally written as 100% immediate vested. But then effective 1/1/2025 (for a calendar year) there is an amendment making it on a 2 year cliff. it needs to be clear though as there there are different ways to slice and dice. 

In my example, all of the QACA accrued for 2024 and earlier is 100% vested, and any QACA contributions for 2025 and future years is subject to the 2 year cliff. 

This does mean folks who have been there awhile will be 100% vested no matter what if they have enough vesting service, and newer folks will always be subject to the 2 year cliff, but that happens over time anyways. 

Are you saying that (in your example), the QACA contribution for 2025 has a 2 year vesting schedule and the QACA contribution for 2026 has a separate 2 year vesting schedule? 
 

Because if you are, that’s wrong and vesting like that hasn’t been allowed since the 80’s. 

[Bri]

Isn't this just a BRF issue with separate vesting schedules for different groups of employees based on hire date?

[AJ North]

First, thank you to all that responded.  Bri has it correct.  The plan has a QACA, however, depending on your date of hire, you would be either 100% immediately vested or subject to a 2-year cliff.  I do not believe I have ever seen a SH plan with two different vesting schedules and yes it appears to be a separate BRF issue.  Since this does not fall under any of the permissible exclusions, can you do this in a SH plan.  I understand you can do this with a non SH vesting schedule, but with a SH vesting schedule?

[justanotheradmin]

16 hours ago, Bill Presson said:

Are you saying that (in your example), the QACA contribution for 2025 has a 2 year vesting schedule and the QACA contribution for 2026 has a separate 2 year vesting schedule? 
 

Because if you are, that’s wrong and vesting like that hasn’t been allowed since the 80’s. 

no, I was saying all QACA contributions for 2024 would be 100% vested regardless of the participant's vesting service. 

All QACA Contributions for 2025 and future would be regular 2 year vesting overall, not per year. 

I was just trying to explain that the buckets that vesting is applied to is by money, not group of employees. 

Better example: If a discretionary employer contribution provision changed vesting from 100% immediate, to 6 year graded, to 3 year cliff over the course of several years, depending on how it is written the plan could end up with a bucket that is 100% vested, a bucket that is 6 year graded, and a newest bucket that is 3 year cliff. 

After each change, all the new contributions would be in a new bucket together with the new vesting schedule, until the plan is amended to change the vesting again the future, and then a new bucket would be tracked. 

I agree, I would NOT do it by year and apply the vesting separately to each year specifically, that is terrible and I haven't see it in decades. 

[Bri]

Someone 25 years ago introduced the concept of "class year vesting" to newbie me, and already as not allowed.

[AJ North]

Again, thank you all for responding.  No this is not a class year vesting situation, class year vesting has not been permitted for 30 years or more.

Whether you are 100% immediately vested all the QACA match allocated to your account, or whether you are subject to a 2 year cliff for all the QACA match allocated to your account; is determined by the date you were hired.   This is the first time I have seen a SH plan with different vesting for different groups of participants where permissive disaggregation is not a factor.  The QACA formula is the same for both groups.  But from what I am finding out, there appears nothing to prevent it.....yet.  Definitely a BRF situation that may become an issue down the road.

[Lou S.]

It sounds like you have a change in vesting schedule. That is employees hired before X are 100% vested, people hired after X are subject to 2 year cliff. If you meet the rules you should be fine. If the plan was setup initially to favor HCE with the immediate vesting then shortly after or concurrently with initial adoption changed to the 2 year schedule for folks hired afterwards, you probably have BRF problem with respect to your timing. if the plan has been running awhile and they switched to 2 schedule, shouldn't be a problem.

[justanotheradmin]

20 hours ago, AJ North said:

Again, thank you all for responding.  No this is not a class year vesting situation, class year vesting has not been permitted for 30 years or more.

Whether you are 100% immediately vested all the QACA match allocated to your account, or whether you are subject to a 2 year cliff for all the QACA match allocated to your account; is determined by the date you were hired.   This is the first time I have seen a SH plan with different vesting for different groups of participants where permissive disaggregation is not a factor.  The QACA formula is the same for both groups.  But from what I am finding out, there appears nothing to prevent it.....yet.  Definitely a BRF situation that may become an issue down the road.

I agree a BRF issue. If all the HCE are in the 100% immediate group, and there end up being enough NHCE in the subject to 2 year group, BRF won't pass.  
But who knows. maybe over time there will be a few in the subject to 2 year vesting group. 

Why not eliminate the groups though? and just track new QACA amounts on the 2 year vesting for everyone? Anyone who has been there long enough would be 100% vested in those new dollars anyways. the old QACA dollars would stay 100% vested. Seems like an unnecessary complication to do the date of hire classifications, which might not even pass BRF testing.