Former LTPT vesting credit

Curious as to whether anyone with a "pipeline" or "contact" at the IRS has heard any rumors as to whether this foolish rule will be changed? It just isn't reasonable for someone who is a former LTPT and now a "regular" employee to receive a year of vesting credit for working 600 hours, whereas someone who started as a "regular" employee must work 1,000 hours to receive a year of vesting credit.

Not to mention, of course, the administrative nightmare and client confusion...

I have not heard any gossip about Congress or Treasury considering a change about ERISA § 203(b)(4) and Internal Revenue Code § 401(k)(15)(B)(iii).

To the extent that a provision one dislikes is the Treasury’s interpretation of a statute, consider that it now is no more than a proposed interpretation. https://www.govinfo.gov/content/pkg/FR-2023-11-27/pdf/2023-25987.pdf And even if it becomes a final rule, effective, applicable, and not vacated or stayed, a court might not defer to the Treasury’s interpretation.

(Also, some comment letters noted that the proposed applicability date would be contrary to the Administrative Procedure Act.)

To the extent that a provision one dislikes results from ERISA § 203(b)(4), Internal Revenue Code § 401(k)(15)(B)(iii), or another statute, consider whether it’s wise to ask anything of Congress.

Except for a statute that otherwise would contravene the Constitution of the United States of America, law does not require that an Act of Congress be reasonable.

There might be interpretations, perhaps even substantial-authority interpretations, of ERISA § 203(b)(4) and Internal Revenue Code § 401(k)(15)(B)(iii) that differ from Treasury’s proposed interpretation.

But am I right in presuming that many service providers are reluctant to suggest a plan’s administrator now interpret the statute differently than Treasury’s proposed interpretation?

Thanks Peter. I appreciate your technical points. But you are correct that I would not suggest/advise a client to ignore the proposed interpretation - that's for the legal/tax counsel to handle. For our mostly small clients, and the relatively few situations where this actually comes in to play, it is unlikely to justify the expense/risk to seek counsel. As a general rule, I favor discretion over valor when dealing with regulatory authorities.

Thanks. And employee-benefits lawyers too are telling clients to defend one’s administration or service by following the proposed rule.

Here’s a caution one might suggest to a plan’s administrator:

Don’t decide until it’s necessary to decide.

For example, a plan’s administrator might not decide how to count a participant’s years of vesting service until the participant becomes entitled to a distribution, claims it (or is subject to an involuntary distribution), and the count matters to determine whether to segregate a forfeiture and how much is forfeitable.

Likewise, even if one accepts that an eligibility condition must not be “a proxy for” an age or service condition beyond ERISA § 202(c), a plan’s administrator might not decide what that means until someone attained age 21, completed two years each with 500 hours of service, and still is an employee.

This is not advice to anyone.