Plans Should Specify the Vesting Schedule for Each Contribution Type Even if Some Contribution Types are Not Being Made (Posted July 8, 1999) Technical Tip 8: A 401(k) plan has no match or profit sharing option, just elective deferrals and 100% immediate vesting. The plan wishes to amend the plan to add a discretionary match under a 7-year vesting schedule. Would the vesting change rules apply to the application of this new benefit even though there are currently no benefits requiring a vesting schedule in the plan? Could we apply the vesting schedule to all participants or would those with more than the requisite number of years be allowed to choose to remain under the 100% schedule, even though it never applied to benefits of this type? IRS Response: We believe that technically the plan has a vesting schedule of 100%, and the appropriate rules would apply to any amendment to the plan. Note, however, that this doesn't preclude the employer from adopting a separate plan with a different vesting schedule. Comment by the RLR&C ERISA Attorneys: This question-and-answer addresses the requirement that, when a plan's vesting schedule is amended, each participant who has at least three years of service with the employer as of the date the amendment is adopted, may elect to have his or her benefits calculated on the old vesting schedule. The plan in the question had only one vesting schedule, i.e., 100% immediate. Therefore, the IRS took the position that any employee who had at least three years of service when the matching contributions feature was added, was entitled to the old vesting schedule and would be 100% vested in employer matching contributions. This problem could have been avoided if the plan had specified a seven-year vesting schedule for matching contributions and profit sharing contributions even if, at the time the plan was established, the employer did not intend to make matching or profit sharing contributions. View all Tips © 1999-2012 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.