Employer A has a 401(k) Plan that includes a 2/20 graded vesting schedule for PS contributions. Some of the owners of Employer A are planning on leaving the company, and starting Employer B. Employer B plans on having its own 401k plan, but wants to count service from Employer A for those employees who leave Employer A to join Employer B. This appears to be an amicable separation, so far so good. Employer B's document can be drafted to count this service with Employer A.

But it is expected that some of the employees who switch from A to B will not be fully vested in their account balance in Employer A's 401(k) Plan. What both employers would like is for none of the employees who are transferring to have a forfeiture. Rather, they can move their entire account balance over to Employer B's plan, and continue to vest in it. So if an employee has a $10,000 account balance in Employer A's plan, but is only 60% vested, the entire $10,000 can be moved to Employer B's plan, and the employee would still be 60% vested. Can this be done?

I suspect the answer is No, because if for example that same employee terminated employment with Employer B, still at 60% vesting, it doesn't seem right that the non-vested portion would now go to Employer B's participant, when it should go to Employer A people. Would you agree?

Finally, if the above ownership was slightly different and the owners of Employer A also had common ownership control of Employer B. Would the above transfer of the non-vested amounts now be acceptable?

Thanks

What about a spin-off plan?

Ther is no prohibiton against moving the entire account balance of each participant to the new plan as part of the spin off of assets since the employee accrued the benefits. Alternative is to vest the spun off employees 100% in their account balances.

I don't know much about them but I will look into. You can transfer non-vested assets to another plan in a spin-off, even if they are unrelated employers?

The distinction lays at the level of distributable event (participant) vs plan level tranfer/merger etc.

A merger/transfer usually entails full account balance transfer and continuation of vesting etc. So the issue of switch is not up to the employee. Either the EE terminates and forfeits non-vested (ok, partial temination issues aside) or the "plan merges" and all the money and current vesting status migrates.

good luck.

Are there any NHCE's? Be sure whatever action you take does not result in violation of 401(a)(4).