Skip to comments.401Ks (Vanity)
Posted on 05/01/2014 12:25:33 PM PDT by TennesseeGirl
Questions about 401Ks.
“vesting” is the operative word. I’m no expert, but it’s not really yours until it’s vested.
You’ll want to find out all the gory details of the vesting schedule.
Some companies have a vesting schedule attached to their 401Ks. Though 10 years is the most common period for 100% vested. You should contact the financial institution that carries the plan and speak with a representative. They can give you details and unbiased guidance.
As I understand it, the employer contribution belongs to an employee when fully vested, in which vesting occurs after a period of some years. In places I have worked, the full vesting period was five years at each place.
The 401K funds are supposed to be kept with an outside financial trustee. My 401K is with Fidelity, which is a completely separate business entity from my employer. So, if my employer went out of business, the 401K money is still there with Fidelity. So it should not matter if your husband’s company is in financial trouble.
Hope this helps. I really don’t know much about these plans, but this has been my experience.
The vesting (guaranteeing of the employer contribution values) would be based on the employee’s longevity with the employer and/or based on how long the plan has been in force.
Do you have any statements from the retirement plan, or does he have online access? I believe she is wrong, and you most certainly should look into doing a rollover, as soon as all of his contributions are in the plan.
Don’t talk to the HR Troll. The 401K is probably administered by a separate financial institution. Call them. The contact info is probably on your 401K statement.
doesn’t make sense. if he’s been there for 14 years, then the company contributions should be vested (i.e., his property). he should ask to see evidence in the plan’s documents proving the HR rep’s point.
to your second point, the assets in the 401k should be protected if the company goes bankrupt. his account should be at a broker-dealer, and customer assets at broker-dealers are protected by SIPC.
Obtain a copy of the 401(k) paperwork and then have an attorney look at it. Do NOT take what the HR person who works for the company says as being factual. While it is possible the company structured the 401(k) to require a person to work for the company for 16 years before they obtain claim to the company’s contributions, it is highly unlikely the company did so.
What post #2 said. You may need two more years to vest. You still should be able to move or roll over the portion which the company did not contribute.
It sounds hokey, there is usually a vesting period, before vesting, the money is theirs, after vesting, the money is yours. Typical Vesting periods are 2-5 years, I was vested after 3.
You should get the policy from HR and review it rather than taking the word of somebody over the phone.
Don’t worry about it when Hitlery is crowned on ‘16 she will nationalize all 401k’s and put them in the (safe) social security lockbox. /sarc
Scroll down a bit at the link; there is a chart with vesting requirements, which would seem to indicate that the HR person is lying to you.
What is 401k Vesting and How Does it Work?
Thanks to all. He IS fully vestedl that’s why I don’t understand. But, this employer has changed the rules so many times over the years we don’t know what the heck is going on. Good advice. We’ll check with the company who administers the plan for the company. I’m just in shock right now. Almost 1/2 our retirement that we had planned on may be gone if she is correct about the way the employer has this set up.
As far as worrying about the funds and the possibility of the employer shutting it's doors, if all is on the up and up, the employer contribution has already been paid into the account of the plan administrator and is segregated. Do you know who the plan administrator is (ie. Fidelity, TransAmerica). If so, they most likely have a web site that you can log on to and will most likely get a much better idea of what you can do from the resources there.
The maximum legal vesting period appears to be six years:
3. When will my company’s contribution be vested?
That depends on the rules of your particular plan. Plan sponsors have some flexibility in deciding vesting schedules when the plan is set up. In some plans, participants are 100 percent vested as soon as they join the plan, while in others, participants have to complete a number of years of service before they’re fully vested.
By law, all participants must be fully vested after six years of service with the company. (If your employer has a cliff-vesting schedule, you must be vested after three years of service, the law states.) Additionally, a few guidelines typically apply to most plans. For instance, in most plans, a participant automatically becomes fully vested when he or she reaches the plan’s defined retirement age (commonly age 65), becomes disabled, or dies, or if the plan is terminated.
You should check with your company’s human resources or benefits representative regarding the rules of your specific plan.
The money he put in 14 years ago is probably fully vested.
However the money he put in last month probably isn’t vested until 2 or more years from now. Check with the 401k plan administrator.
Your 401K is subject to the regulation of the IRS, it has been since the regulation was established. You don’t own your retirement.
Do what you can for now (direct as you see appropriate). Unless and until fiscally conservative Constitutionalists are elected, be prepared to have your retirement savings converted to 3% per annum growth in gummint “investments”, (bonds).
Don’t ask me how I know.
Typically, it's a percentage (for instance, 20% a year, for 5 years) or a cliff (you get nothing back except what you've put in, until you hit a pre-specified mark - usually 3 or 5 years). Or, you're just vested automatically - whatever it's worth, you get when you leave.
Vesting should be pretty well spelled out in the employee handbook.
Additionally, look to roll it over directly to an IRA rather than take a distribution to avoid taxes and penalties. Typically, you don't even want to touch a check.
Please note, I'm not an investment counselor, nor did I even sleep at a Holiday Inn last night.
It is permissible to require a vesting period in order to be eligible to claim the employer’s match. But I’ve never heard of a vesting period that extends past an employee’s employment.
This seems like a scam to me. Lawyer up.
His contributions are fully vested day one. Company contributions generally vest on a graded basis over a period of up to 6 years, 1/6 per year though the period could be shorter, of cliff vesting, 0% TO a max of 3 years, then it’s his. Applicable to each years match, not his total service. If that’s not the answer he got, I’d ask HR to explain why, perhaps you’re not in a traditional 401K, then go to the plan administrator and ask again to get the correct answer.
16 years is a long time to be vested. I would check with the company that holds the 401k.
How do you KNOW this ?
Sounds like you need legal advice. If there's hanky-panky going on, you may be able to get the full proceeds (to roll into an IRA) and take a bite out of their hide.
Thank you for starting this thread. I’m at 14 years at my job, too. I fully expect them to change their rules, and must seek out external retirement options. I was thinking USAA..
Best of luck to you and your Husband on this.
Congrats on taking advantage of the 401K. The matching is gravy. Some cheesy companies do match but then set up a 25% vesting schedule on their extra contribution. Just confirm this is the case, express astonishment and then move on. You done what you could.
Addendum: If they tell you that you can keep the 401K in place and vest the contribution piece, look into buying an index fund for your stock purchase and leaving it in. It depends on the money amount that will be left on the table if you move the 401k. If it’s mice nuts move on and roll it into a self directed IRA, if its a substaintial dollar amount see if there is a low cost index(s) in your plan.
See if they are talking about the withdrawal penalty. Normally that and normal taxes ends up at around 50%. These taxes and penalties are not charged on a QUALIFIED rollover. I would talk to the 401(k) administrator for the specific plan.
To quote a contemporary patriot, “Like every inch of my glorious naked body.
“Once the feds regulate something, anything, they own it because the individual can’t defeat their legal and physical firepower. Ask rancher Bundy who looks over his shoulder constantly.
You need to take the written plan to somebody who knows. But if it’s written that way into the plan I’d say he’s stuck. (Who you’d take it to, I don’t know.) But you’d be amazed at what a letter from a lawyer would do. You’re right to be suspicious. They probably don’t have enough cash in the plan which violates federal law. If that’s the case you may be okay with a lawyer who knows the federal law. Even if you don’t have the legs for a lawsuit I’d have a lawyer threaten one. (He could threaten class action, which I’m certain a financially strained company would want to avoid.)
federal law is that you are 100% vested in no more than 10 years..
you are being handed a line of crap...
tell them to pay you off in the next 60 days or you will file a complaint ( you must have an ira to roll it into first)
Is the 401K in company stock? If not, it sounds like you’re getting some bad info.
You’ve been getting a lot of bad info on this thread — some good info, but too much bad.
I’m a pension actuary and I’ve spent my career helping employers design and administer defined benefit and defined contribution plans. 401K plans are defined contribution plans.
When employee and employer contributions are made they are put into a trust. Those contributions then are not affected by anything that happens to the employer. So, the future of the employer doesn’t affect the money that’s held in trust for your husband in any way.
An employer match of 50% is actually a pretty good plan.
It sounds like the plan vests 100% employer contributions that are in the trust, or plan, for 2 years. That’s a pretty good vesting schedule. That means that employer contributions that have been in the trust for more than 2 years are your husband’s. Employer contributions made during the last 2 years would be forfeited upon termination of employment.
It sounds like either the HR person was communicating incorrect info in some respects or your husband wasn’t understanding fully what was being communicated.
In any event, your husband should have been given a Summary Plan Description that explains the plan, and he has a right to a copy of the actual plan document if he requests it.
An attorney shouldn’t be necessary. That would almost certainly be a waste of money. I seriously doubt that the company or the HR person would try to cheat you. There are very serious potential federal penalties if they did.
Make certain he is investing in a 401K plan. Get a copy of the plan document, request it from the plan trustee. It will state the vesting period. it can be less, but most plans have a 7 year vesting period. I do not think that you can have a vesting period longer than 7 years.
When you take the money out, set up your rollover IRA to receive the rollover, have a trustee, make certain the distribution is a Direct Rollover to your new trustee. You do not want to take constructive receipt of those funds.
If you do take a premature or normal distribution, and take constructive receipt of the funds they will retain 20% withholding and you may end up treating the funds as income in the year received. If premature you will owe a 10% premature distribution penalty on that year’s taxes.
How does that work if the fedgov says you are to be 100% vested at six years? Is it a moving target? My understanding was that once you hit the 100% vesting target date, 100% of what was in the account was yours, both your contributions and the employer's, both past and future contributions.
I can’t see how they can remove money from his 401k, his name is on it, not theirs!
Thank you Cletus. That answer was well thought out and presented with nothing short of practical logic and common sense.
each financial plan has its own stupid rules, you have to contact the Plan Administrator
The target doesn't move, each employer contribution has its own vesting period which cannot exceed six years. In this case, the vesting period is two years, so any employer contributions within the last two years are subject to either partial or full forfeiture, depending on the terms of the plan.
Okay, then help me understand this. The guy has had a 401k plan there for 14 years. He should have been 100% vested at 6 years, so he's been 100% vested for 8 years. How is it the last two year's funds (his employment years 13 and 14) are not fully vested for him?
That's not what the literature I've been reading on many sites, including the IRS, says. It says once you are 100% vested, everything contributed up to that point (yours and employer's), and forward from that point, is yours. It says nothing about each employer contribution having a vesting period. It says you, the employee, have a vesting period.
http://www.smart401k.com/Content/retail/resource-center/retirement-investing-basics/company-match - this one specifically states the vesting period doesn't restart with each employer contribution.
All of these specifically state you, as the employee, are vested at a certain time (the company has to at least meet one of two types of vesting schedules, it can vest the employee faster, but can't do it any slower than either of the two schedules - cliff or graduated).
None of mention anything about each employer contribution having a vesting period.
All the companies I worked for matched my contribution each paycheck, the matching didn't roll forward with its own vesting period, once I was 100% vested, it was mine.
When I was 100% vested, all of my 401k was able to be rolled over to an IRA, or even into my new employer's plan if I quit my old employer. None of it was held back. No waiting period. That's why I'm confused by the explanations given by you and Rum Tum Tugger. Everything says you, the employee, have a vesting period to be able to claim the employer matching as yours, not that each employer matching contribution has a vesting period.
At least in the case of this thread, post 46 indicates the issue has been addressed satisfactorily by HR.
Good to hear! Yes, this really is confusing sometimes. I'm just glad it worked out for the OP. Good Friday to you!
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