What is 401k vesting?

1st Nov 2009 by Joseph Pousada

When an employee is vested they have rights to the employer contributions made previously to the plan and any future employer contributions to the plan. (This includes matching contributions and any other contributions as well.) For traditional 401k plans there are generally two vesting schedules that are used. One provides for plan participants to be fully vested after three years of service and the other is a six year plan which starts out in year two at 20 percent vested and increasing another 20 percent each year until year six. A plan may restrict you from the plan if you are not at least 21 years old and also they may restrict you if you have not had at least one year of service. If you have a safe harbor 401k plan, the employer contributions are fully vested as soon as they are made.

Reference:
http://www.dol.gov/ebsa/faqs/faq_compliance_pension.html
http://www.irs.gov/retirement/sponsor/article/0,,id=151800,00.html

This answer is the subjective opinion of the writer and not of FinancialAdvisory.com