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When is the company match mine?

Chris Farrell Jun 12, 2009

Question: I was part of a “downsizing” in late January from an IT software vendor in New York City. During my tenure at the firm I was contributing to the company 401k program which has a matching and vesting component. Now that I am no longer working at the company, how does the vesting and company match work out? (Incidentally on January 1st, the company stopped matching in the 401k — but most of my contributions predate that event.) In calling the 401k company it sounds like I will not receive the company match and vesting. Is this true, even though it was not my choice to leave the company? I wanted to check before rolling my 401k over to my IRA. There is a 6 year vesting period, and I am fairly happy with the low expense ratio index fund selected in the 401k. PS. I was only out of work for a few weeks. Seth, Forest Hills, NY

Answer: I’m glad you got another job so quickly. That’s terrific. By law, any money you contributed to the 401(k) plan is yours. Period.

The issue with vesting is determining when the company’s “match” becomes your money. It’s a basic equation. It’s partly decided by how long you’ve worked at the company and partly by the vesting schedule the company adopted. The two most common types of vesting timetables with 401(k)s are the “graded” and the “cliff”.

Here is the minimum “graded” vesting timetable:

1 year of work: 0% vested
2 years of work: 20% vested
3 years of work: 40% vested
4 years of work, 60% vested
5 years of work, 80% vested
6 years and after, 100% is vested.

An alternative is the “cliff” vesting schedule:

After 2 years of work: 0% vested
After 3 or more years, 100% vested.

These percentages are the minimum standard companies must follow by law. But companies are allowed to be more generous if they choose. For instance, about a third of employers have 401(k) plans with the company match immediately owned by the employee. A four year vesting schedule is fairly common, too.

Now, when it comes to vesting it doesn’t matter why you left the company, voluntarily or by being laid off. (The latter in your case.) So, from your email it looks as if you are under the 6 year 100% vesting rule. I’d check out the details of your plan and hopefully you’re at least partially vested.

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