When you have a 401(k) that offers an employer match or nonelective (profit sharing) contribution, you may not be the only one contributing to your account. Your employer may also make contributions to help boost your retirement savings. These employer contributions, however, could be subject to what’s known as a vesting schedule, depending on your company’s 401(k) plan.
Vesting refers to the amount of time you must work for your employer (years of service) before you own certain employer contributions. While you will see employer contributions applied to your account balance as they happen, you may not own them until you have been with your employer for the specified period of time.
Types of vesting
100% immediate vesting means you own the contributions right away.
Cliff vesting is where you own the full employer contributions after a certain timeframe has passed. For instance, if your company implements two-year cliff vesting, then once you have completed two years of service, you will be 100% entitled to the funds.
With graded vesting, rather than going from 0% to 100% vested after hitting a certain milestone, the percentage you own increases over a set schedule. For instance, if you have two-year graded vesting, you would own 50% of the contribution after one year of service and own 100% at two years of service.
To find your company’s vesting schedule, access the Plan Details page of your Guideline dashboard.
What happens if you leave your company before you’re fully vested
If you leave your employer before you are 100% vested, then you might forfeit all or a portion of the employer contribution amounts, depending on your company’s vesting schedule.
Rest assured, you are always 100% vested and entitled to your own salary contributions, any rollover balances from your other retirement accounts, and any traditional safe harbor contributions.