Employers Can Revise 401(k) Vesting Schedule

Q Our Section 401(k) plan provides for company matching contributions. When I was hired, employees became fully vested in those contributions after they had been there for two years.

However, the company has amended the plan so that all employees hired within the last year do not become fully vested until they have completed five years of employment. Is this legal?

--D.G., Hollywood

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A Employers can amend their Section 401(k) plans to revise the vesting schedule. (Vesting refers to the employees earning a nonforfeitable right to the employer contributions to the plan on their behalf.)

There are two limitations, however. First, the amendment cannot reduce a participant’s vested percentage. Second, if the employee has completed three years of service, he or she can elect to remain under the original vesting schedule.

Because the amendment only affects employees with less than one year of service, it is permissible.

--Kirk F. Maldonado

Employee benefits attorney

Riordan & McKinzie

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