Vesting At Retirement Age

A participant reaches retirement age. She has never worked 1000 hours to earn any vesting credit, Would she then be 100% vested since she's reached retirement age?

Yes, a participant must become 100% vested upon attainment of normal retirement age as defined in the plan.

Some of the facts in the original post might raise questions.  Many (not all) plans require some period of service before becoming a participant.  Often, that period includes a requirement of working at least 1000 hours.  Prudence might lead one to make sure the employee in question is actually a participant.

For clarity, the individual must be fully vested upon attainment of normal retirement age, but it is possible for the plan to define normal retirement age as the later of attainment of an age not later than age 65 (i.e., it could be younger) or the passage of up to 5 years from the employee's commencement of participation in the plan [1.411(a)(7)(b)].  Note that this is NOT an accumulation of either eligibility or vesting years of service, but rather is the passage of time from the commencement of participation.

If you want to see this in simpler language from the IRS, click here:

https://www.irs.gov/retirement-plans/plan-participant-employee/when-can-a-retirement-plan-distribute-benefits

@Coleboy1, check the plan's definition of normal retirement age to see if there is a time component.

Paul, those are the latest statutory distribution dates not normal retirement, which is defined in the plan but can be no later than age 65 or 5 years of participation.

@CuseFan thanks, I updated the post so it will not mislead anyone.

23 hours ago, CuseFan said:

no later than age 65 or 5 years of participation

Be careful.  As another poster said, it's the 5th anniversary of participation, not 5 years of participation, which often requires 1,000 hours in a plan year.

I've seen this messed up several times by people just saying (and thinking) "5 years of participation".  The actual words matter.  It's best to not even say it that way.

1 hour ago, acm_acm said:

Be careful.  As another poster said, it's the 5th anniversary of participation, not 5 years of participation, which often requires 1,000 hours in a plan year.

 

I've seen this messed up several times by people just saying (and thinking) "5 years of participation".  The actual words matter.  It's best to not even say it that way.

Well heck, if we're getting semantic/pedantic, let's go further and say it's the 5th anniversary of the first day of the plan year in which participation commenced. 

That is correct, very odd, but correct. So if someone entered a calendar year plan on 12/1/2020 they would become fully vested under this rule on 1/1/2025 regardless of years of vesting service.

Does anyone know why an employer would choose to define NRA under a 401(k) plan as the later of, say, age 65 or the 5th anniversary of the first day of the plan year in which participation commenced?  Unless there is a connection with the employer's DB plan, or the employer hires a lot of part-time folks over age 60, why go through all of this hassle?

TIA.  Your comments are greatly appreciated!