A little confused on graded vesting

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Clever_Username
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A little confused on graded vesting

Post by Clever_Username » Fri Apr 12, 2019 1:29 pm

I had a discussion with a friend yesterday and we are a little confused. Looking up terms did not help us very much (I am now more confused).

We are both teachers at a private school that has a 403(b). The employer portion is very nice, and includes a non-elective match -- whether you contribute or not, they contribute a percent of your salary (there is also a match if you do contribute, but that is not the topic here).

Our plan docs say this:
The (employer) nonelective 5% contribution is subject to a four year graded schedule (25% per each credited year of service) for eligible employees hired on or after (a date before either of us began employment).

So my question is this: if my friend has over four credited years of service, and leaves employment next year, does he have any of the match taken out, such as from this month's paycheck (which would be less than four years before leaving)? Or does this read as "once you have four years of credited service, the match is fully vested as soon as you get it"?

Unfortunately I think I got more confused when reading various definitions of graded vesting. :annoyed

To make it more confusing, the 403(b) is listed (at least at my Vanguard account) as "(Employer) Retirement Savings Program Tax Deferred Annuity" ... despite being invested in mutual funds at Vanguard. I hope this doesn't end up meaning that it has to eventually become an annuity.
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prudent
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Re: A little confused on graded vesting

Post by prudent » Fri Apr 12, 2019 1:37 pm

To me it says after 4 years, everything (including future match amounts) is 100% vested.

djheini
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Re: A little confused on graded vesting

Post by djheini » Fri Apr 12, 2019 1:41 pm

I have always seen it as the same vesting percentage applies to all employer money. So once you're at 100% vesting, any new money that comes in is 100% yours immediately.
Last edited by djheini on Fri Apr 12, 2019 1:41 pm, edited 1 time in total.

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Re: A little confused on graded vesting

Post by Clever_Username » Fri Apr 12, 2019 1:41 pm

Excellent, thank you both!
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Re: A little confused on graded vesting

Post by bradpevans » Fri Apr 12, 2019 1:45 pm

my first thought was 1.25% in year 1, 2.50% in year 2, 3.75% in year 3 and then 5% in year 4 and thereafter...

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Re: A little confused on graded vesting

Post by nolesrule » Fri Apr 12, 2019 6:35 pm

bradpevans wrote:
Fri Apr 12, 2019 1:45 pm
my first thought was 1.25% in year 1, 2.50% in year 2, 3.75% in year 3 and then 5% in year 4 and thereafter...
Vesting is on a percentage of the existing balance, not the contribution amount.

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Re: A little confused on graded vesting

Post by cherijoh » Fri Apr 12, 2019 6:44 pm

djheini wrote:
Fri Apr 12, 2019 1:41 pm
I have always seen it as the same vesting percentage applies to all employer money. So once you're at 100% vesting, any new money that comes in is 100% yours immediately.
Me, too. One way to check is to look at your statement or if you haven't been around long enough to be vested ask a more senior colleague.

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Re: A little confused on graded vesting

Post by LadyGeek » Fri Apr 12, 2019 8:27 pm

This thread is now in the Personal Finance (Not Investing) forum (employer retirement plan).
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Re: A little confused on graded vesting

Post by Clever_Username » Fri Apr 12, 2019 9:43 pm

LadyGeek wrote:
Fri Apr 12, 2019 8:27 pm
This thread is now in the Personal Finance (Not Investing) forum (employer retirement plan).
Thank you. I wasn't sure which it belonged in and looks like I picked wrong among the two choices. Sorry for the inconvenience.
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Re: A little confused on graded vesting

Post by Horton » Sat Apr 13, 2019 7:45 am

25% after 1 year, 50% after 2, 75% after 3, and 100% after 4. It applies to the entire employer nonelective balance. Once he hits 4 years, he should keep everything in the account.

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Re: A little confused on graded vesting

Post by Clever_Username » Sat Apr 13, 2019 8:36 am

Thank you everyone. We appreciate the clarification.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

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