We have a plan with a 1/20 vesting schedule. The employer wants to change it to a 3/20 schedule. I am looking for clarification on the 3-years of service election rule (i.e., "each participant who has completed 3 years of service may elect to stay under the old vesting schedule"). It is my understanding you can never take a vested benefit away. To clarify, based upon the above facts, say we have a participant with 2 years of service and is currently 40% vested, can the employer take the participant to -0-% because they do not have the right to make an election to stay with the old vesting schedule?? I am thinking the 3-year rule must be used perhaps with plans that have a 5-year cliff.

Any guidance would be appreciate!

Also, when changing vesting, do you generally tie the amendment to new participants entering the plan after a certain date or simply go on those employees hired after a certain date.

Perhaps confusion over terminology. I believe that the correct phrasing is that you cannot "take away" a vesting percent (not the vested benefit). In this case, the participant with 2 years is not covered by the special rule of IRC 411(B)(10)(B). But that does not mean the vesting % changes, just that he does not get the choice of the better vesting schedules.

If I understand the new schedule as 3/20%, 4/40%, 5/60%, 6/80%, and 7/100%, then this EE will experience some "grandfathering" of his vested percent, not his vested benefit. I believe the result will be:
2/40%, 3/40%, 4/40%, 5/60%, 6/80%, 7/100%.

I would agree with Pax's explanation. You can't take the vesting away, but you can apply the new vesting schedule if ee has less than 3 years.