401K Question?

Question

If an employer plan has a vesting schedule and an employee leaves employment with that employer prior to being 100% vested, what happens to the non vested portion of the monies in the plan?

I was unclear in my question. I am only referring to the un vested employer match.

Answer 1

depends on what type of money it is....

forfeited match can either be used to fund the match for the next year or to offset fees to the plan.

forfeited profit sharing money can be used to fund the match for the next year, to offset fees to the plan, or to be allocated to the rest of the participants as a forfeiture allocation.

One thing that it can never do is go back to the employer. Once the money is contributed to the plan and in the trust there are very, very, very few reasons that it can be returned to the employer.

Answer 2

It's probably worth mentioning that you are always 100% vested in your own contributions. It's only employer matching contributions that have a vesting schedule. So if you leave prior to vesting you take your money and the employer takes theirs and you go your separate ways. The employer doesn't get to take your money.

Answer 3

You non-vested portion is taken away by your employer. And not only that earnings on that non-vested money is also taken away.

Note that your own contribution is never a part of vesting schedule. Vesting applies only to employer's matching contribution.

http://www.theusefulinfo.com/finance/2007/04/what-happens-to-non-vested-money-in.html

-Infoman
Not a legal advice.

Answer 4

The non-vested portion goes back to the company that contributed the funds. You haven't "earned' that money yet, so it essentially still belongs to your employer.

Answer 5

It depends.

If you have a "graduated vestment", it might mean that after one year you're 20% vested, two years, 40%, etc...then you're entitled to the amount equal to the percentage of your vestment at the time of separation.

If not, then any money that is not part of your vested interest is returned to the employer.

Answer 6

Non vested money goes into a "forfeiture" account, which is owned by the company. Some plans provide for period division of this money between current participants. It depends on the provisions of your particular plan.