Merging 401 K. Plan

Merging 401(k) Plan The issue of vested and unvested employees is rather complicated. We need to analyze the facts and create several other groups, according to the 'vesting' intervals they find themselves in. We need to address the issue of the vested employees at Claricom who have finished their 4-year period of vesting with Claricom, because, if the Staples schedule is adopted, we will need to consider what will happen with the additional one year that the scheme requires.

As such, because the company has decided to adopt the Staples schedule, these employees will find their vesting period increased with an additional year and, even more so, they will also find 20% of their future benefits cut-off, as the additional year is considered to correspond to the additional 20% that the Staples schedule implies. It is probable that the most serious issue here is exactly this 20% difference.

If they had been working for Claricom (or if the Claricom scheme had been adopted), they would have received 100% of them matching funds, but, as the Staples scheme has been adopted, they will only leave (if they decide to leave) with 80% of the funds. In my opinion, the wrong schedule was adopted here. I will justify myself in the following lines. In general, when two things need to be merged, the smallest common denominator rule is used.

In our case and in my opinion, the Claricom scheme should have been adopted. Had it been so, the employees from Claricom that would have been in the questionable interval (4 to 5 years) would have already achieved 100% according to the Claricom scheme, while the employees from Staples would have passed directly to the Claricom scheme and would have avoided the additional year.

Of course, this type of arrangement would have benefited the employees and it is in the company's advantage to adopt a scheme that implies that the employees from Claricom lose one year from the vesting schedule and that the Staples employees don't gain an extra year. In the given case, I will advise Staples to include some sort of compensation for the loss incurred by changing the vesting scheme for the Claricom employees only. 2.

After reading the case several times, I have arrived to the conclusion that the longer-term unvested employees do not pose any particular problem. As it is, there are two types of unvested long-term employees; those who work at Staples and those who have previously worked for Claricom. The first category implies no additional issues: they will not change the vesting scheme, so for them, the five-year initial schedule has not suffered any changes.

The Claricom employees, as it is mentioned in the case, will be adopting the Staples schedule, so this will mean that they will be enjoying several of the advantages from Staples, such as the bigger proportion of the matching funds for longer services. In my opinion, the change in schedule can in no way affect those that are outside the intervals (less than one year and more than five), because they can easily fit into the scheme. The problem may appear with the employees that have not been vested yet. 3.

The new employees with less than one year from Staples have no problems. As it is mentioned in the case study, these employees are already included in the vesting scheme. Of course, for now they have not received any percentage from the matching funds, but they will begin to earn the agreed upon 20% as soon as their first year is accomplished. The employees under one year.