vesting on contributions

In a qualified plan, an employer could not say have a 3 year vesting period apply to each year's contribution, which could for example have an employer with 20 YOS but would not be vested in that year;s contribution until she had 23 YOS.  

But if this were a church plan or other non-qualified plan, that type of vesting is acceptable, is that correct?

16 minutes ago, Santo Gold said:

In a qualified plan, an employer could not say have a 3 year vesting period apply to each year's contribution, which could for example have an employer with 20 YOS but would not be vested in that year;s contribution until she had 23 YOS.  

But if this were a church plan or other non-qualified plan, that type of vesting is acceptable, is that correct?

 

If a plan is not subject to ERISA, then it is, ahem... not subject to ERISA. If the plan you are talking about is not subject to ERISA, then the vesting rules of ERISA don't apply and they can basically provide the benefit with restrictions as they see fit.

But ERISA preemption is lost, so state law may be relevant, although not usually because states either do not get involved, or at least not with church plans (they enjoy exceptions).  State law tends to be a mess and it can be difficult to determine for sure if state law applies in some way.  Government plans get caught up in state law.

We have used this type of vesting, which before ERISA was permissible and referred to as "class year" vesting, in governmental plans for high level employees. Typically, state law will not prohibit.

Church (and governmental) plans are subject to the pre-ERISA vesting rules  [see 1.411(a)-1(c)(2)]. 

Back in my early days, I worked on a benefit claim for a DB participant who terminated prior to ERISA.  The Plan's vesting schedule at the time the person terminated was cliff vesting at age 65 and 35 years of service. It was an interesting history lesson that made an impression.

I think union plans can have 100% after 5 years, and we had one that had a cliff schedule 100% after 3 years on new $, but 100% after 5 years no matter what.

3 hours ago, Kevin C said:

Back in my early days, I worked on a benefit claim for a DB participant who terminated prior to ERISA.  The Plan's vesting schedule at the time the person terminated was cliff vesting at age 65 and 35 years of service. It was an interesting history lesson that made an impression.

When I read about things like that it makes me really wonder if there was ever really a golden age of pension coverage like people talk about.  They go on about how people used to have pension and now they only have 401(k)s.  As far as I can tell in heavily unionized industries and the government there were pensions (although we are starting to find out they were not being funded well) but not sure the rest really had a pension coverage as a practical matter.  I mean you heard stories in the '80s  of pension with 15 year cliff and a lot of terminations at year 14 for example.  Did retail employees really have pensions?  I have heard Sears and other large retails had them but my guess is most in the industry didn't or they never vested as a practical matter. 

Off soap box for now. 

The golden age of pensions only existed in the large industrial employer and unionized space, so it's not like the majority of American workers had one. Now, the only active (unfrozen) pensions seem to be in financial services and the small tax-deferral type cash balance, but those almost never provide lifetime annuity income. And the large active financial services industry pensions are mostly cash balance as well, so those with lump sums don't necessarily provide lifetime income in practice.

As you note, the old rules could be harsh - and even the post ERISA rules (which the aforementioned class-year vesting was still around until TRA-87 I believe) were no bargains. I came in post-ERISA but I remember 15-year vesting schedules (but they were graded starting at 5 years). Forfeiture upon pre-retirement death, no spousal protections, etc. - all those were improved post-ERISA.

But, back then, most employees usually stayed with an employer for their career, or maybe changed jobs once or twice during their 40-45 year career. Then the corporate raiders and over funded plan terminations took over in the mid to late 80's and the loyalty/social contract between employer and employee was broken forever as cost-shifting ushered in the 401(k) plan as a replacement benefit instead of a supplemental benefit. Hence the need for more protections and shorter vesting schedules and the plethora of employee notices and disclosures.

Sometimes you need a good soap box rant and a stroll down memory lane - but as Billy Joel sang in Keepin' the Faith, the good ole days weren't always good and tomorrow ain't as bad as it seems.

peace out!

ESOP Guy, someone's probably done a study, but my guess is your largely correct. With long vesting schedules and the ability to have 100% social security offsets before 1986, probably most folks didn't get much.

1 hour ago, Luke Bailey said:

ESOP Guy, someone's probably done a study, but my guess is your largely correct. With long vesting schedules and the ability to have 100% social security offsets before 1986, probably most folks didn't get much.

Hey, I left the "big insurance company" to form my own firm in the early '80s; the plan was a social security offset plan with a 10 year vesting schedule (nothing vested until 10 years) and I left with 9 1/2 years, so no vesting!  But I have always told my classes that it was a good thing that I left because I was age 30 and I could do the math, and I would have owed them money at age 65 if I had been vested!

Good one, Larry.

Are all 403(b) plans with employer contributions subject to ERISA?  If so, then this would not be an acceptable vesting schedule for a 403(b) Plan, is that correct?

Thank you

Some 403(b) plans are governmental plans not governed by ERISA.

Some 403(b) plans are church plans that have not elected to be governed by ERISA.