Change Vesting Schedule

Cash balance plan currently has immediate 100% vesting. Plan sponsor would like to change to 3 year cliff vesting effective for those hired 1/1/23 and later. Eligibility is 21 & 1, and entry is 1/1 & 7/1. What are the considerations in terms of whether or not this works? 

Amend the plan before those people enter on 1/1, and those folks can be subject to the new schedule.

I concur - please note the new vesting schedule will apply to all those who have not entered the plan yet - and not to only post 1/1/2023 hires.  If the objective is different, tweak the amendment language to accommodate.

Thanks. Any BRF issues?

Generally no. You might want to look at timing to see if it favors HCEs.  As long as you follow the rules on changing a vesting schedule and don't cut back those who already accrued the 100% vesting I personally haven't seen it be an issue but perhaps someone else might have a different experience.

I admit I am a DC guy not a DB guy so I normally read this out of curiosity and not say anything.

However, I will at least suggest you think about how rehires will be addressed and get that in the amendment. 

What if a person was hired and left before the date 1/1/23 and only had 2 YOS so wasn't vested in the plan and gets rehired after 1/1/23?  I would make it clear how they will be treated in everyone's mind.

I work with a number of firms with very high turnover and to keep it simple everyone agreed it was original hire date and that was written in the amendment. 

Maybe it is obvious in this type of plan how this will work but I am throwing it out there as I have seen this turn into a debate after the fact in DC plans.   You can nip this up front if you think it through.  

Is there also a DC plan?  Not mandatory, but it might be useful to make sure the plan design considers the existence of another plan.

All very helpful, thank you!

On 11/14/2022 at 5:21 PM, Lou S. said:

You might want to look at timing to see if it favors HCEs.

This is a great point and should not be overlooked. If you had owner or HCEs only and gave immediate vesting but now there are NHCEs coming into the Plan and you want to add a vesting schedule, that might be an issue.