401k Contribution » Employer 401k Contributions
What is a Vesting Schedule?
If you are enrolled in an employer sponsored retirement plan, such as a 401(k), 403(b), or other plan, then you are likely to be receiving some type of matching contribution from your employer. These matching contributions are free money that is intended to help supplement your retirement savings.
Your employer usually attaches strings to this free money. These strings come in the form of a vesting schedule that rewards you for continued employment.
Here are some examples:
Example 1 - Alpha Beta Company has a vesting schedule that calls for 20% vesting per year over a five-year period. If an employee receives $1000 in matching contributions in their first year of employment and leaves the employer after 3 years, then how much money will they be able to take with them?
Since there is a five year vesting schedule at 20% per year, the employee will receive 3 years times 20% per year or 60% of the $1000 contributed by the employer. They will take $600 with them and forfeit $400.
Example 1 - Alpha Beta Company has a vesting schedule that calls for 20% vesting per year over a five-year period. If an employee receives $1000 in matching contributions in their first year of employment and leaves the employer after 3 years, then how much money will they be able to take with them?
Since there is a five year vesting schedule at 20% per year, the employee will receive 3 years times 20% per year or 60% of the $1000 contributed by the employer. They will take $600 with them and forfeit $400.
Example 2 - Gamma Raye Corp provides 100% immediate vesting. In this case, the employee will not have to wait for their money to vest since all contributions immediately become available to the employee.
There can be a many other combinations of vesting schedules. Every employer’s Plan Document has this information included within it. Ask your Human Resources department for more information and access to the Plan Document to find your plan’s vesting schedule.
There can be a many other combinations of vesting schedules. Every employer’s Plan Document has this information included within it. Ask your Human Resources department for more information and access to the Plan Document to find your plan’s vesting schedule.
You can find more information regarding employee benefits at http://www.career-counselor.net
Donald Sims is a contributing author for http://www.career-counselor.net
Source: www.isnare.com