PS plan vesting schedule amendment

We have a 401(a) DC plan that changed the vesting schedule from 100% immediate to a graded schedule only for employees hired on or after 2/1/2014.  The 100% immediate schedule continues to apply for those hired prior to 2/1/2014. Is BRF testing is necessary?  Thanks.

I don't think so since regs clearly indicate you are permitted to modify a vesting schedule

however, there are other issues

1.someone hired early in 2015, assuming 1000 hours each year would have 3 years at this point and therefore get his choice of old schedule or new schedule.

2. at the minimum, $ accrued under the old schedule must remain 100% vested. there is some argument whether the vesting itself is protected  - if you have ERISA Outline Book see chapter 4,  section III  Part F

Just to cover things I would never recommend doing the egregious.  By that I mean get all the HCEs hired and 100% vested and then amend the plan to make the NHCEs need to wait.  I had a start up do that.  All the owners got hired and since they were owners they were HCEs from day one.  There was only 1 NHCE working at first.  A few months in they amended the plan to make it a 5 year cliff (This happened a long time ago) and they started hiring more and more employees.  So at the end of year one they had 3 HCEs 100% vested, 1 NHCE 100% vested and about 5 NHCEs 0% vested. 

I am not sure I can cite anything but I wouldn't want to defend that fact pattern. 

14 hours ago, Tom Poje said:

1.someone hired early in 2015, assuming 1000 hours each year would have 3 years at this point and therefore get his choice of old schedule or new schedule.

When was the plan actually amended for this change? Depending on the date, Tom's comment might be applicable or might not. For example, if this change was actually made prior to 2015, then it wouldn't apply. If amended in 2017, then he's made a great point on a tricky little "gotcha" that you need to be aware of.

As Belgarath points out, the date of the amendment is important. the question becomes how many years of service does someone have on the date of the amendment.

without getting into the details, part of the comment in the ERISA Outline book is as follows

(ERISA Conference argues new vesting schedule applies to new accrual, IRS argues, no you told the person he is x% vested, you can't reduce that for future accruals.)

1.c.Which interpretation is correct? The ERISA Conference Report represents the intent of Congress, but the Treasury is not required to follow legislative history. The language in the Treasury regulation seems to side with the IRS interpretation. See Treas. Reg. §1.411(a)-8(a). The "conventional wisdom" is to use the IRS interpretation, since the IRS will argue that approach in an audit situation. The IRS interpretation also is simpler from a plan administration standpoint. Check the plan language first. If the plan is ambiguous, the plan administrator (or other responsible fiduciary) will need to interpret the terms of the plan and should follow an approach consistent

Tom, I hung several of your Grinch relatives on the tree last night. MY relatives also hang from trees, but they are hanging by one arm, while eating bananas with the other...

FWIW - We've always taken the IRS approach for exactly the reasons specified.

Belgareth

I'll look especially for those items when I stop to steal...I mean, to pick up those items for repair.

I just noticed why I like your name    BelgAretH

All the responses are appreciated, but BRF testing or no???  Thanks again.

No. It is not a BRF. Not an optional form of benefit, not an ancillary benefit,  not a right or feature.

in itself, no, since it is clear you can amend a schedule.

however, there is 1.401(a)(4)-11(c) which says plan can not discriminate in favor of the HCEs in regards to vesting, but even that adds "other than the method of crediting service for purposes of applying the vesting schedule."

as was mentioned above, if it was mostly owners at the start of the plan, and then within a short time the plan was amended arguably it would fail 11(c). more of a fact and circumstances test, as mentioned in the regs.  or another way of looking at it, net effect on Day 1 only HCEs were eligible at 100% and Day 2 when other employees were eligible there was a 6 year graded.

not much different than saying, we have 2 vesting schedules, 1 for HCEs at 100% and another for everyone else.

so I guess one question would be is how long has the plan been around?