{"id":756,"date":"2023-03-22T15:37:40","date_gmt":"2023-03-22T15:37:40","guid":{"rendered":"http:\/\/eplapprw11.paychex.com\/blogtest\/?post_type=article&p=114"},"modified":"2026-09-30T08:37:38","modified_gmt":"2026-09-30T14:37:38","slug":"what-is-401k-vesting","status":"publish","type":"article","link":"https:\/\/secure.eplanservices401k.com\/marketing\/article\/what-is-401k-vesting\/","title":{"rendered":"What Is 401(k) Vesting?"},"content":{"rendered":"\n

Vesting refers to the amount of time it takes for an employee to take full ownership of an employer 401(k)<\/a> contribution. While the funds that an employee contributes to a 401(k) are 100% vested, an employer contribution may not be fully available to an employee until the vesting requirements are satisfied.<\/p>\n\n\n\n

Vesting can happen at a gradual pace or all at once after the employee has worked a certain number of years at a company.<\/p>\n\n\n\n

If an employee stays with a company until retirement, they have no reason to worry about vesting requirements. However, if they decide to leave the company, a portion or all unvested employer contributions may be forfeited back into the plan.<\/p>\n\n\n\n

What Are Vesting Schedules?<\/h2>\n\n\n\n

Some companies offer immediate vesting, meaning the employee owns their employer contributions right away. However, other companies may choose to delay employee vesting for a period of time.<\/p>\n\n\n\n

If a company chooses the latter, a vesting schedule determines how long it will take for employer contributions to be fully vested.<\/p>\n\n\n\n

Each company is different and may choose between two common types of vesting schedules. Note that for an employee to complete a year of service, they must work at least 1,000 hours during that year.<\/p>\n\n\n\n

1: Graded Vesting<\/h2>\n\n\n\n

Graded vesting allows the employee to take ownership of at least 20% of funds after two years of employment. This amount increases by an additional minimum of 20% each year.<\/p>\n\n\n\n

For example, after two years, an employee may obtain a minimum of 20% of the employer match, followed by an additional 20% each year until the funds are 100% vested. The employee must be fully vested within six years.<\/p>\n\n\n\n

2: Cliff Vesting<\/h2>\n\n\n\n

In a cliff vesting schedule, employees take ownership of 100% of the employer match after a period of up to three years.<\/p>\n\n\n\n

Vesting Schedule Guidelines<\/h2>\n\n\n\n

Employers need to follow strict government guidelines. According to the Internal Revenue Code, employers must follow one of the two vesting schedules and each one has a maximum time frame.<\/p>\n\n\n\n

If you don\u2019t know your company\u2019s vesting process, you can find this information in the Plan Highlights document located in the About My Plan section of your participant website.<\/p>\n\n\n\n

What Are the Benefits of a Vesting Schedule?<\/h2>\n\n\n\n

Employers may opt to delay vesting to support employee retention. For instance, an employee may consider leaving a company but delay their departure until after they are fully vested in their 401(k). Knowing that an employer will match the employee’s contribution may also incentivize a current employee to contribute to their 401(k).<\/p>\n\n\n\n

What Are the Downfalls of Vesting?<\/h2>\n\n\n\n

One of the pitfalls of vesting schedules is that employees may forfeit a portion of their employer contributions if they leave prior to becoming fully vested. In some cases, vesting schedules may cause an employee to stay with a company they\u2019ve outgrown to reap the reward of fully vested funds. Eventually, an employee may have to weigh this waiting period against their career goals.<\/p>\n\n\n\n

What Happens if an Employee Leaves Before Their Funds Are 100% Vested?<\/h2>\n\n\n\n

An employee may have weighed their options and ultimately decided to join a new company. However, if they transition to a new employer, money that was not fully vested into their 401(k) account is forfeited back to the original plan.<\/p>\n\n\n\n

If an employee is terminated or laid off, they forfeit all unvested funds. However, according to the Internal Revenue Code, when a 401(k) plan experiences a partial termination (more than 20% of plan participants are laid off), all the participants must become fully vested.<\/p>\n\n\n\n

Understanding your company\u2019s vesting schedule can be key to making career decisions. To see your recent contributions and employee match balance, log in to your ePlan Services account<\/a> and view your participant dashboard.<\/p>\n\n\n","protected":false},"featured_media":1903,"template":"","categories":[10,11],"tags":[],"class_list":["post-756","article","type-article","status-publish","has-post-thumbnail","hentry","category-article","category-for-individuals"],"acf":[],"yoast_head":"\nWhat Is 401(k) Vesting? - ePlan Services<\/title>\n<meta name=\"description\" content=\"If your employer offers a 401(k) match, how long will it be before you own those contributions? 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