What is “Vesting”?

Vesting is a term that describes your right to receive your account balance upon distribution from the plan. For example, you are 80% vested in an account that is worth $20,000. Upon distribution, you will receive $16,000.  The other $4,000 is “forfeited”.

Is my entire 401(k) account subject to vesting?

  1. You are always 100% vested in your 401(k) deferrals.
  2. You are always 100% vested in non-discretionary, employer Safe Harbor contributions
  3. Terms of your company’s plan dictate if other “sources” of contributions, e.g., regular matches, profit sharing, etc., are subject to a vesting schedule.

How do I become more fully vested in my account balances?

  1. The plan defines a Year of Service, typically a calendar year in which you work 1,000 hours.
  2. For each Year of Service, you become more vested. Typical vesting schedules give no vesting until you have 2 Years of Service—at which point you are 20% vested.  With each passing year, you earn an addition 20% vesting such that you are fully vested after 6 Years of Service.

After I leave the employment of a company in whose plan I am not fully vested, will my vesting increase?

You might possibly earn a Year of Service for the last calendar year of your employment, but beyond that, nothing increases your percentage of vesting (unless the company terminates the plan).