PLANSPONSOR - August - September 2022 - 12

UPFRONT
Vesting May Be on the Verge
sponsors go with the QACA safe harbor
specifically because they can do two-year
cliff vesting, " he notes.
" If not forced to allow for immediate
vesting, most sponsors
choose
to subject participants to a vesting
schedule, " Droblyen continues. The
Employee Retirement Income Security
Act does require that plan sponsors limit
cliff vesting to three years of service, at
most, to become 100% vested, and graded
vesting has a six-year limit. " Employers
can definitely make their vesting rules
more liberal, if they choose, " he says.
Kristi Baker
and
her
colleagues
at CSi Advisory Services see a trend in
sponsors shortening their plan's vesting
period. In conversations with clients
about recruiting and retaining employees,
" one issue they're looking at is, 'Does a
six-year vesting schedule still make sense,
for the kind of employees we're trying to
attract?' " says Baker, managing partner in
the firm. Immediate vesting is rare, except
in safe harbor plans. " More commonly, we
see a move to a three- to four-year graded
vesting schedule. "
The shorter vesting period is more
attractive to some employees, Baker says.
Those applying for " more executive-level
positions or professional-level positions,
do look into those kind of details now. "
Vanguard's recent " How America
PERSONAL finance writers around
the U.S. have lately opined about how
employees should regard the vesting
schedule in their employer's defined
contribution retirement plan.
For workers in businesses with a
relatively short employee tenure, a longgraded
vesting schedule could appear
unfair to workers. But, for the plan
sponsor, the vesting schedule can control
costs and help with employee retention.
Safe harbor plans must follow some
clear vesting rules, but beyond that, sponsors
have considerable flexibility in structuring
their plan's vesting. " My book of
12 PLANSPONSOR.COM August - September 2022
business is probably skewed toward nonsafe-harbor
plans, " says Joe DeBello,
managing
consultant
at
OneDigital
Retirement + Wealth. " Therefore, the topic
of vesting is a constant in our discussions. "
The Rules
To qualify as a traditional safe harbor
plan requires immediate 100% vesting for
participants. A qualified automatic contribution
arrangement safe harbor plan with
automatic enrollment can have up to twoyear
cliff vesting, says Eric Droblyen, president
and CEO of Employee Fiduciary, a
third-party administrator. " Many times,
Art by Caroline Barlow
Saves " report found that, in 2021, nearly
half of plans immediately vested participants
in employer matching contributions,
and 25% of plans with an employer
match used a five- or six-year graded
schedule. The report covers 4.7 million
participant retirement accounts from
the 1,700-plus plans for which Vanguard
keeps records.
Usually
sponsors'
first
decision
about vesting is made in their choice of
plan design, says Jim Sampson, national
practice leader for Hilb Group Retirement
Services. If they choose other than a
safe harbor plan, the employer needs to
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PLANSPONSOR - August - September 2022

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