Global Courant 2023-05-26 21:50:34
Iparraguirre Recio | Even | Getty Images
44% of subscriptions offer a ‘rare’ benefit
Companies use different timelines, or waiting schedules, to determine how long it takes for savers to fully own employer contributions.
In some cases, they have to work for a company for at least six years before the money is theirs. They risk forfeiting some of the money and investment returns if they walk out early.
An employee retains full ownership of their match when it is 100% acquired. An important note: an employee is always the full owner of his own contributions.
According to the PSCA survey, more than 44% of 401(k) plans offer immediate full acquisition of a business match. This means that the employee immediately owns the entire match, which is the best outcome for savers. That share has increased from 40.6% in 2012.
Otherwise, the acquisition periods may vary
The rest, 56% of 401(k) plans, use either a “cliff” or a “graded” schedule to determine the timeline.
Cliff Fortress grants full ownership after a certain point. For example, a saver whose 401(k) uses a three-year cliff vesting will fully own the corporate match after three years of service. Before that, however, they get nothing.
Graded schedules become proprietary gradually, at set intervals. A saver on a five-year plan owns 20% after the first year, 40% after the second year, and so on until reaching 100% after the fifth year.
For example, someone who gets 40% of a $5,000 match can walk away with $2,000 plus 40% of any investment returns from the match.
Federal rules require full vesting within six years.
According to the PSCA survey, nearly 30% of 401(k) plans use a graduated five- or six-year schedule for their business match. This formula is most common among small and medium-sized companies.
Vesting schedules tend to be a function of company culture and the philosophy of executives who oversee the retirement plan, Ellen Lander, director and founder of Renaissance Benefit Advisors Group, based in Pearl River, New York, previously told CNBC.
Further, there are instances where an employee can become 100% vested regardless of the length of their tenure.
For example, the tax law required full vesting once an employee reaches “normal retirement age” as determined by the 401(k) plan. For some companies, that may be age 65 or earlier.
Some plans also offer full vesting in the event of death or disability.
