With few notable exceptions, the statutory and regulatory references we need in the administration of plans are at our fingertips from a number of easily accessible internet resources, a great deal of them actually available for free. Sometimes I do wonder how we were ever able to practice back in the 80’s and 90’s without these resources -which we do really now take for granted.
One of the most annoying of those “notable exceptions” is found under Code Section 411(e) of the Code, the vesting standards which apply to governmental and church 401(a) plans. Section 411(e)(2) states, in pertinent part, that these plans “shall be treated as meeting the requirements of this section, for purposes of section 401(a), if such plan meets the vesting requirements resulting from the application of sections 401(a)(4) and 401(a)(7) as in effect on September 1, 1974.”
Really? Have you ever tried to find “401(a)(4) and 401(a)(7) as in effect on September 1, 1974.”?
Well, if you have need of it, Section 401(a)(4) in effect on that date read as follows:
“either benefits or contributions must not discriminate in favor of employees who are officers, shareholders, persons whose principal duties consist in supervising the work of other employees, or highly compensated employees.”
Section 401(a)(7) in effect on that date reads as follows:
“A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that, upon its termination or upon complete discontinuance of contributions, under the plan, the rights of all employees to benefits accrued to the date of such termination or discontinuance, to the extent then funded, or the amounts credited to the employees’ accounts are nonforfeitable. This paragraph shall not apply to benefits or contributions which, under provisions of the plan adopted pursuant to regulations prescribed by the Secretary or his delegate to preclude the discrimination prohibited by paragraph (4), may not be used for designated employees in the event of early termination of the plan.”
The IRS added a further twist, however. In its 1972 version of Publication 778, as referenced in its Memorandum To Managers of April 30,2012, the IRS took the position that the pre-1974 rules also require that all participants be fully vested as of the plan’s normal retirement age.
You can find much of this at this IRS link
This is an odd sort of application of the vesting rules, which require use of general nondiscriminations standards as a sort of threshold to being able to vest or non-vest benefits.
It is these quirky sort of rules which make this profession so fascinating…..