(b)lines Ask the Experts – Eligibility After Move From Union to Non-Union Employee

“We sponsor an Employee Retirement Income Security Act (ERISA) 403(b) plan that excludes collectively bargained employees from the right to receive employer contributions, though they are permitted to make elective deferrals to the plan.

“Recently, a union employee who has been a full-time employee for 10 years transferred to a nonunion position which is eligible to receive employer contributions in the 403(b) plan. However, we have a waiting period of one year in order to receive employer contributions, and employer contributions are not fully vested until after the completion of three years of services. Does my former collectively-bargained employee need to wait a year in order to receive employer contributions, and three years to become fully vested? Or is he immediately eligible/vested, since he has already completed 10 years of service, albeit as a union employee?” 

Michael A. Webb, vice president, Cammack Retirement Group, answers:  

Proper crediting of service can often be an area of confusion for plan sponsors, and your question is a prime example of the complexity of such rules.

There are types of service that can indeed be excluded under the Code for eligibility and/or vesting purposes (Code Section 411(a)(4), which excludes service prior to age 18 among other exclusions for vesting purposes, comes to mind). However, service while working in a classification that is excluded from the plan is NOT a type of service that can be excluded—at least for eligibility for participation and vesting.

Thus, in your example, an employee with 10 years of service as a collective bargained employee would be immediately eligible to receive employer contributions when he becomes a nonunion eligible employee, and would be immediately vested in such contributions as well.

Thank you for your question!


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.  

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