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Subject:  Re: 401K Vesting Rules Date:  12/8/1997  1:55 PM
Author:  TMFPixy Number:  848 of 127745


<<I believe ERlSA requires a 20% per year vesting credited to employees over a 5-year period at which time any and all employer contributions are considered fully vested. (It's been awhile since I checked for any changes in these matters so I could be wrong about this.) My question is this: If the parent corporation is selling one of its subsidiaries (where I work) and I have been in the 401K plan for only three years, how much of past EMPLOYER matching contributions vest to me given that they are terminating the plan and that we will no longer be affiliated with the parent corporation? My assumption would be 100% given the involuntary nature of the plan termination. But, could it be a prorated vesting schedule based on length of time employed to conform to the mandatory 20% per year ERISA rules?>>

Plans may use either a seven-year vesting or a five-year cliff vesting schedule. In the seven-year, employer contributions do not begin to vest until the third year of plan participation. In year three, they are 20% vested, and that increases 20% per year to 100% in year 7 and beyond. In five-year cliff vesting, the employer contribution is zero percent until five years is reached, and then they are 100% vested. Plans may adopt either of these schedules or anything in between that's faster.

Regardless of the vesting schedule, participants must be 100% vested on reaching normal retirement age under the plan, upon full or partial termination of the plan, or upon the complete discontinuance of employer contributions to the plan.

If the plan is indeed being terminated, then all ER contributions should be 100% vested in your account when the termination occurs.

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