Saying goodbye can be painful (financially)
Question: Recently I’ve been considering new opportunities that would result in leaving my current employer. I am not yet fully vested in the company match of our 401k plan. If I leave I’m wondering whether the investment earnings on the portion of the company match I’m not vested in are provided to me or retained in the plan. Is there a 401k rule or standard practice for this situation? Tom, Charlotte, NC
Answer: My guess is that this question is going to come up a lot over the next few years. The economy is improving and at some point the renewed vigor will show up in the job market. If recent surveys are to be believed there are many stymied employees looking to advance their careers elsewhere.
Vesting simply means the money is 100% yours. It can’t be forfeited when you leave your employer. Companies have some leeway in establishing their vesting schedule.
When it comes to a 401(k) your contributions are yours. Period. The investment earnings off your contributions are yours, too. So is the amount of the match that is vested (if any) and the earnings off that sum. But the portion of the employer match that isn’t vested and the earnings off that money isn’t yours when you leave.
It pays for anyone looking to leave their employer to see what is the vesting schedule of their current pension plan. Verify the numbers. Don’t just assume. Sometimes, it pays to stick around for a few more months to get the most out of the 401(k) match. Of course, if the right job offer comes along you’ll take it, vesting schedule or not. Still, it’s sensible to make sure you get the most that you can out of your current plan.
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