Beginning in 2007, the PPA creates a faster vesting schedule for employers’ nonelective contributions. Under the old law, these contributions were subject to five- year cliff vesting or a graded vesting schedule that began in the third year and ran for five years. Now, nonelective contributions must vest on the same schedule as matching contributions: either three-year cliff vesting or a graded vesting schedule that begins the second year and runs for five years. The provision applies to contributions made in plan years beginning after December 31, 2006 — so “old money” attributable to nonelective contributions before then may continue to vest under the current schedule. Employers that provide nonelective contributions should take note of this important change.

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