Can a company restart vesting on 401k contributions

Asked about 1 year ago - Miami, FL

My company is starting a new 401k. They already have a 401k which will remain but the new one will get all future contributions. They are telling me that because it is a new 401k the vesting period will start over and I will not be vested fully for 6 or 7 years. I have already been employed by the company for 8 years. Can the company restart the vesting schedule? I thought vesting was based only on years of service for the company and not how long I have been in a particular 401k plan. Otherwise it seems like they can restart the vesting over and over again.

Additional information

Spoke to the hr person and what he is telling me is that the 401k service provider told him - Because it is a new plan they can base vesting on years of eligibility for the new plan and disregard prior years of service.

Further edit - To be clear what I am told by the company is that it would not affect my current vested balance but when the new plan begins future matching contribution s would be unvested and subject to a new vesting schedule. Also they are looking at 5 years to vest.

Attorney answers (1)

  1. Adam Kielich

    Contributor Level 18

    Answered . Generally a company cannot terminate its plan and start a new one to avoid some employees obtaining the vested benefit their service would entitled them. In most circumstances any prior service would be computed on the new plan's vesting schedule.

    However, there are exceptions to that general rule based on why a new plan was created, generally related to a change in the employer's business, such as a bankruptcy, merger, etc. If the company is denying you appropriate vesting you should file a claim on the plan to get them to provide you with a written explanation. The process for filing a claim will be listed in the SPD.

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