adding PS and vesting

Hi

Having a bit of brain freeze again.

Current plan has only 401k and SH provisions. Effective date of the plan is 2017.

Planning to add PS provisions for 2020 (never had before).

As with the addition of the PS provisions and the vesting for PS, can the plan exclude service for PS portion? i do not think so as this is an ongoing plan but just curious if I missed something here.

Thank you

Check to see if the document already has a PS feature and vesting schedule but the Plan has simply not made a PS contribution. If that is the case, you'll want to look at the rules on changing a vesting schedule.

You cannot add a PS feature to the Plan and start vesting in 2020.

You may be able to exclude service prior to the effective date of the Plan in 2017.

Jakyasar and Lou, I have a question: One scenario is that the plan document has a PS feature but no PS contributions have in fact been made. In such a scenario, pre 2020 service could not be excluded for vesting.  Suppose, however, that the plan document does not allow for a PS contribution, and therefore is now amended to provide for a PS feature effective for 2020.  Why would this not be a separate plan? The 414(l)-1 regs define "plan" for 401(a) purposes. Basically, under the 414(l) Regs. a single plan is one in which all plan assets are available to pay benefits to employees covered under the plan. However, more than 1 plan exists if a portion of the plan's assets cannot be used to pay some of the benefits. Basically, separate asset pools are separate plans.  The PS plan would be a separate plan. Why cannot service before plan adoption be excluded? Keep in mind that the 401(k) or 401(m) portions are not predecessor plans--they are existing plans.  

My plan does not allow PS provisions at all nor have any. Interesting approach by B. Parvarandeh. But i do not believe it can be a separate plan unless a separate plan is set up for ps provisions only. Agree?

1 hour ago, Jakyasar said:

My plan does not allow PS provisions at all nor have any. Interesting approach by B. Parvarandeh. But i do not believe it can be a separate plan unless a separate plan is set up for ps provisions only. Agree?

Yes. That would be the correct conclusion.

It is a secret buried in the regulatory scheme that the definition of "plan" is very difficult to apply in a defined contribution plan context.  It is not clear at all.  In practice, we assume usually that a "plan" under the 414(l) regulations is the same as a "plan" for DOL purposes, but the regulation doesn't come any where close to saying that. 

Quite some time ago, I have seen legal counsel draft for an employer a defined contribution plan document that stated that there was more than one asset pool and hence more than one "plan" within the 414(l) meaning within a single plan document.  It strikes me as very aggressive, an example of form over substance if one paragraph in a plan document can make it so, but I couldn't say that it was definitely wrong.

Very interesting, thank you for sharing but unless the document got an IRS opinion letter, not sure if it would fly.

Bringing in the ideas from this other thread, is there anything stopping them from adopting a new plan and excluding vesting service prior to that plan's effective date?

Other than the additional cost, none but it is their decision to determine the cost effectiveness of adding a second plan. Thank you all for your comments

3 hours ago, C. B. Zeller said:

Bringing in the ideas from this other thread, is there anything stopping them from adopting a new plan and excluding vesting service prior to that plan's effective date?

Unlike in that other thread, the employer would be stuck maintaining two DC retirement plans for a prolonged time period.  Once the plans merge or there is a transfer of assets between them, Treas. Reg. Section 1.411(a)-5(b)(3)(ii) requires that vesting service be recognized from the earliest date of when any component plans were established.

On 10/20/2020 at 4:46 PM, Jakyasar said:

My plan does not allow PS provisions at all nor have any. Interesting approach by B. Parvarandeh. But i do not believe it can be a separate plan unless a separate plan is set up for ps provisions only. Agree?

I am happy to be told I am wrong on this as I am doing this from memory.  But back in the day (the early '90s) when I first started working on 401(k) plans I remember being told there is no such thing as a stand alone 401(k) plan.   I was taught that all 401(k) plans were a provision in a Profit Sharing plan or ESOP (thus being a KSOP).....  You might even be able to put a deferral provision in an MPP but never a stand alone 401(k) plan.  

Are you sure the document doesn't have a PSP provision?   If a prototype check the base document or something.  I has always been my understanding if you have a 401(k) plan you have a Profit Sharing plan.   

To repeat someone wants to tell me I am wrong fine as I am doing this from things I was taught decades ago. 

It is true that qualified plans in the Internal Revenue Code are classified as pension plans, profit-sharing plans and stock bonus plans.  What is nicknamed a 401(k) plan typically is a type of profit-sharing plan.

However, just because a plan officially is a profit-sharing plan does not mean that the plan document currently permits employer nonelective, nonmatching contributions to be made.

In short, I think ESOP Guy is conflating two different issues.

The Plan Doc we mainly use is the Datair Non-Standardized Cash or Deferred Profit Sharing Plan.

Question A.1.a is:

Plan Permits this type of contribution.  (Choices are)

Elective Deferrals, Safe Harbor Employer Contribs, SIMPLE K Employer Contribs, Non-elective Contribs, Matching Contribs, Prevailing Wage Contribs

Any of them can be selected as yes, or left blank as no.  So it's easy to see how a plan can check off only Deferrals and Match only, therefore not having a 'Profit Sharing' component in a "Cash or Deferred Profit Sharing Plan"