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Normal retirement: service vs participation years for vesting


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Posted

Plan defines normal retirement as "the later of 59 1/2 or 5 years of plan participation".  100% vesting occurs at that point per the Plan.  Plan defines a "year of service" as "1000 hours during the plan year" for vesting.  Plan does not separately define a year of participation. 

Participant was hired in 2017 at age 66.  Termed as of 02/05/2021 (but had no hours or comp in 2021).  Participant had 4 years over 1000 hours (2017, 2018, 2019 and 2020).  Employer match has 2/20 vesting.  Participant is 60% vested in the match upon termination on 02/05/2021) because he had not yet reached his NRD.  So far so good.   

Participant is rehired as of 05/17/2022 working approx 16 hours per week.  Reenters plan on rehire per plan provisions.  Participant needs another 2 years of participation to reach normal retirement under the plan definition.  If he ends up working over 1000 hours he will become 100% vested by the vesting anyway however since he is only scheduled for 16/wk he probably won't make 1000 hours. 

Where I'm getting hung up is trying to figure out if this participant will fully vest upon attainment of the plan's normal retirement definition regardless of his hours worked in the next two years?   

Posted

It's not defined as the fifth anniversary of plan participation (with its inherent, really the first day of the plan year in which participation commenced, subtext)?

Posted

Yes - here is the definition in the AA:

"Age/participation. The later of the date a Participant attains age     59 1/2         (see Note below) or the     5       (not to exceed 5th) anniversary of the first day of the Plan Year in which participation in the Plan commenced.

NOTE:   A Participant's age specified above may not exceed 65 and, if this Plan includes transferred pension assets, may not be less than age 62 unless the Employer has evidence that the representative typical retirement age for the adopting Employer's industry is a lower age, but may be no less than age 55."

This participant entered the plan on 04/01/2018.  So his Normal Retirement Date would be 01/01/2023 ("1st day of the plan year....").  He would then vest 100% as of 01/01/2023 (again regardless of hours worked)?

Posted

Could the NRA be defined as "age 59-1/2 + 5 years of plan participation" (ie, the plan definition in original post above), but not later than "age 65 + the fifth anniversary..." (ie, the statutory limit)?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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