Is it legal to calculate vesting service years starting the introduction of employer match on a long standing 401k plan?

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Is it legal to calculate vesting service years starting the introduction of employer match on a long standing 401k plan?

I need to clarify if vesting years of service can be calculated starting from the day of establishing an employer match, rather than from employee hire date. The scenario is company has a long standing 401k plan which does not offer a company match. The company established a match 3 years ago as direct record keeper and producer of plan documents to arrange for the vesting service years to start

calculation from the date of adopting the match, rather than look back to each employee’s hire date for the then existing employees. The company thinks this has been done also because the platformthe record keeper’s online solution logistically does calculate vesting percentages per this assumption. There is no major entity change of the sponsoring company or change in the plan and we are excluding other break in service exceptions from the vesting calculation percentages. Is it legal to start the years of service calculation for vesting from the first paydate employer match was contributed?

Asked on May 2, 2018 under Employment Labor Law, Virginia

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

It is legal for two related reasons:
1) First and foremost, remember that vesting is in the employer match portion: you are always vested in your own contribution. Therefore, it is logical to calculate from the date the match started.
2) Second, remember that there is no obligation to have an employer match at all. The employer has free rein, if they elect to voluntarily have an employer match to set the parameters for it, such as amount of match and years to vest.


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