Employer 401k contribution taken back after 5 years of leaving the employer.

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amuppala
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Employer 401k contribution taken back after 5 years of leaving the employer.

Post by amuppala »

Hi,

I worked for JP Morgan Chase bank from 2014 -2016 ( 2 year 2 months) and after 2018 I started working for a different employer and did not move my 401k balance(employee + employer contribution) from jpmc provided 401k plan . In November of 2021, we see a distribution with drawl of 10k from my JPMC 401k account with out any notification and the reason was that employer contribution will be vested only if the employee work for full time of 3 years.

Does the employer has the right to take back employer contribution 401k funds after 5 years of leaving the job without any notification.

Experts please advice on what options do I have.

Thank you,
Asish
an_asker
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by an_asker »

amuppala wrote: Wed Jan 12, 2022 9:52 am Hi,

I worked for JP Morgan Chase bank from 2014 -2016 ( 2 year 2 months) and after 2018 I started working for a different employer and did not move my 401k balance(employee + employer contribution) from jpmc provided 401k plan . In November of 2021, we see a distribution with drawl of 10k from my JPMC 401k account with out any notification and the reason was that employer contribution will be vested only if the employee work for full time of 3 years.

Does the employer has the right to take back employer contribution 401k funds after 5 years of leaving the job without any notification.

Experts please advice on what options do I have.

Thank you,
Asish
Hmmm... I am confused why you think you were vested in the money that you knew wasn't yours. Didn't your statements from 2018 to 2021 show what your vested portion was? The company can take their portion back whenever they wish. If you had moved to a different custodian, are you seriously saying that you would have been able to transfer the entire balance?

BTW, I believe what happened with this situation is the norm. DW's previous employer's 401k worked the same way. The statements kept showing the entire balance, and separately showed the vested balance. One arbitrary day a couple of years or so after she had left, the unvested amount was removed to forfeiture.

PS: Where were you from 2016 to 2018?
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8foot7
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by 8foot7 »

They're not "taking back" anything - it was never yours.
pshonore
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by pshonore »

Seems odd they waited 5 years to do that. What would happen if it had been rolled to a TIRA , or another employers 401K plan within a year or two?
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8foot7
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by 8foot7 »

pshonore wrote: Wed Jan 12, 2022 11:06 am Seems odd they waited 5 years to do that. What would happen if it had been rolled to a TIRA , or another employers 401K plan within a year or two?
In my experience unvested balances are restricted from being rolled until the employer signs off on the transfer.

(thanks neurosphere for the fix)
Last edited by 8foot7 on Wed Jan 12, 2022 5:10 pm, edited 1 time in total.
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neurosphere
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by neurosphere »

8foot7 wrote: Wed Jan 12, 2022 11:08 am
pshonore wrote: Wed Jan 12, 2022 11:06 am Seems odd they waited 5 years to do that. What would happen if it had been rolled to a TIRA , or another employers 401K plan within a year or two?
In my experience vested un-vested balances are restricted from being rolled until the employer signs off on the transfer.
I realize it's just a typo but figured I'd fix it for you because I'd like to pad my post count. :D
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DIFAR31
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by DIFAR31 »

pshonore wrote: Wed Jan 12, 2022 11:06 am Seems odd they waited 5 years to do that. What would happen if it had been rolled to a TIRA , or another employers 401K plan within a year or two?
The non-vested portion of the balance probably wouldn't have rolled, and it would have been returned to the employer.
lostinjersey
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by lostinjersey »

Many plans permit nonvested amounts to remain in an employee’s account for 5 years after they leave - in order to simplify administration if they are rehired.

Forfeiting the nonvested balance is then done after the 5 year mark has passed.

This is standard practice. Nothing unusual at all.
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galawdawg
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by galawdawg »

You acknowledge that you did not work at JPMC long enough to be fully vested. You do not become vested after a certain period of being a former employee.

Because those funds were not vested, they belonged to your former employer (JPMC), not you. In other words, they were never yours. JPMC was free to remove their funds from the plan at any time.
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ResearchMed
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by ResearchMed »

8foot7 wrote: Wed Jan 12, 2022 11:08 am
pshonore wrote: Wed Jan 12, 2022 11:06 am Seems odd they waited 5 years to do that. What would happen if it had been rolled to a TIRA , or another employers 401K plan within a year or two?
In my experience vested balances are restricted from being rolled until the employer signs off on the transfer.
[IShould "vested" be "not yet vested" in the above.]

Even when there is no "vesting" issue, within Employer retirement plans, including 403b plans, the Employer still controls the money until/unless it is removed. And the Employer can indeed make decisions about whether the money - or how much money - can be removed.

With our 403b plan, even if one is eliglble to remove money, the Employer still needs to "sign off" that the Employee/former Employee really *is* allowed to remove the money being requested. Thus far, it's always been a pro forma procedure, usually okayed very quickly (within a day)... but the "approval" is required before the financial firm holding the monies will release any of it. And they won't release one cent more than Employer "approves", if it isn't all available to be withdrawn at that time.

In our current case, it's a matter of being employed less than full time. Employer needs to verify that current "status" (percentage employment) does indeed allow for any money to be removed that particular month, and also what maximum percentage/amount can be removed. Then the money is released.

RM
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CletusCaddy
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by CletusCaddy »

lostinjersey wrote: Wed Jan 12, 2022 11:21 am Many plans permit nonvested amounts to remain in an employee’s account for 5 years after they leave - in order to simplify administration if they are rehired.

Forfeiting the nonvested balance is then done after the 5 year mark has passed.

This is standard practice. Nothing unusual at all.
Rehires regain their original grants? That’s new to me
an_asker
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by an_asker »

DIFAR31 wrote: Wed Jan 12, 2022 11:17 am
pshonore wrote: Wed Jan 12, 2022 11:06 am Seems odd they waited 5 years to do that. What would happen if it had been rolled to a TIRA , or another employers 401K plan within a year or two?
The non-vested portion of the balance probably wouldn't have rolled, and it would have been returned to the employer.
Retirement plans include a forfeiture account. Some (good) employers redistribute that amount among the "loyal" employees; others just absorb it as part of their cost of doing business (and/or providing the retirement plan option).
lostinjersey
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by lostinjersey »

CletusCaddy wrote: Wed Jan 12, 2022 11:22 am
lostinjersey wrote: Wed Jan 12, 2022 11:21 am Many plans permit nonvested amounts to remain in an employee’s account for 5 years after they leave - in order to simplify administration if they are rehired.

Forfeiting the nonvested balance is then done after the 5 year mark has passed.

This is standard practice. Nothing unusual at all.
Rehires regain their original grants? That’s new to me
They can. It depends on the plan rules.
MrJedi
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by MrJedi »

5 years to come back and continue tenure for vesting was common at 2 different companies I've worked for.

You should have seen the company contributions were not vested.
ShowMeTheER
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by ShowMeTheER »

lostinjersey wrote: Wed Jan 12, 2022 11:21 am Many plans permit nonvested amounts to remain in an employee’s account for 5 years after they leave - in order to simplify administration if they are rehired.

Forfeiting the nonvested balance is then done after the 5 year mark has passed.

This is standard practice. Nothing unusual at all.
This is accurate
Colorado13
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by Colorado13 »

8foot7 wrote: Wed Jan 12, 2022 10:50 am They're not "taking back" anything - it was never yours.
Exactly this. Because you did not meet the 3 year vesting requirement, you are not entitled to these funds.
iamlucky13
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by iamlucky13 »

an_asker wrote: Wed Jan 12, 2022 10:49 am Hmmm... I am confused why you think you were vested in the money that you knew wasn't yours.
Probably because they continued to show the money in his statements for 5 years after ending employment.

Vesting is not exactly a topic of common knowledge, especially for younger workers. I'm pretty sure even a lot of older workers don't do much more with their retirement account than check the balance once a year and probably don't know much about vesting, either. I had never even heard the term until I got a 401k, and was mostly on my own to research why our custodian showed my 401K balance split up as vested and non-vested.

I remember also being confused whether my employer at the time adjusted my vested portion at the start of the year or the end, due to poorly written benefits documents. That is to say, if my vesting period is 3 years, do I start at 33% vested at complete at the start of the 3rd year, or do I start at 0% vested and complete at the end of the 3rd year? In my case, it turned out to be the former, which would have had the OP fully vested if that were the case for his plan (although obviously, it was not the case).

I'm now mid-career and had not until today ever heard that it is common to continue to show unvested money in account statements for 5 years after termination. When I was laid off from my first job, 60% of my company contributions were removed from my account shortly after termination (5 year incremental vesting, and I had 18 months tenure). Until that actually happened, I hadn't been entirely certain if I had a correct understanding of the concept.
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galawdawg
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by galawdawg »

By the way, I neglected in my earlier post to welcome you to the forum!

Apologies that our replies are likely not what you had hoped to receive, it is unfortunate if you were prematurely expecting/planning on those funds.

Hope that you will continue as a member of our community....you will likely find helpful and useful investment advice and personal finance information if you stick around and take advantage of the breadth of wisdom and experience that others here will be happy to share! :happy
an_asker
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by an_asker »

iamlucky13 wrote: Wed Jan 12, 2022 1:21 pm
an_asker wrote: Wed Jan 12, 2022 10:49 am Hmmm... I am confused why you think you were vested in the money that you knew wasn't yours.
Probably because they continued to show the money in his statements for 5 years after ending employment.

Vesting is not exactly a topic of common knowledge, especially for younger workers. I'm pretty sure even a lot of older workers don't do much more with their retirement account than check the balance once a year and probably don't know much about vesting, either. I had never even heard the term until I got a 401k, and was mostly on my own to research why our custodian showed my 401K balance split up as vested and non-vested.

[...]
I'm now mid-career and had not until today ever heard that it is common to continue to show unvested money in account statements for 5 years after termination. When I was laid off from my first job, 60% of my company contributions were removed from my account shortly after termination (5 year incremental vesting, and I had 18 months tenure). Until that actually happened, I hadn't been entirely certain if I had a correct understanding of the concept.
While you are generally probably right in younger workers not knowing about vesting, in this case, as OP brought it up, he's quite aware as to what it is.

Besides (this is for the average younger worker you are referring to), if you are onboarded and are unfamiliar with the term, you can always ask among your peers. Also, usually, when you are onboarded, HR will discuss the 401k option in an orientation session (If my employer does it, I am sure most employers would lol) and explain vesting.

The only thing I was not up to speed on was the five years term. And even that I doubt is universal or even majority. I am pretty sure one old employer of mine took the unvested amount away within a year past termination (at most two years). Who knows, maybe the five years is a new thing too?
zeeke42
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by zeeke42 »

an_asker wrote: Wed Jan 12, 2022 11:24 am Retirement plans include a forfeiture account. Some (good) employers redistribute that amount among the "loyal" employees; others just absorb it as part of their cost of doing business (and/or providing the retirement plan option).
I don't think they can just absorb it back in to the company, but they can definitely absorb it in to the costs of running the plan. I received a one time employer contribution last year because the amount in the forfeiture account had grown too large and the IRS required them to return it to participants.
TropikThunder
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by TropikThunder »

an_asker wrote: Wed Jan 12, 2022 1:37 pm While you are generally probably right in younger workers not knowing about vesting, in this case, as OP brought it up, he's quite aware as to what it is.
OP is aware now because he was told that’s why the money was removed. That doesn’t mean they knew before it was removed.

It’s kind of disappointing to see the assumptions and judgement here. It seems to me the post is as much a question about vesting as anything. Not all custodians break out the vested and non-vested splits. My 403b is at TIAA and all they ever said was to check with my employer to see how much of the match I had vested. And even that notice wasn’t obvious unless you looked for it.
Last edited by TropikThunder on Wed Jan 12, 2022 2:50 pm, edited 1 time in total.
Goal33
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by Goal33 »

5 years is normal. Read the plan documents.
mikejuss
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by mikejuss »

If the OP had rolled the old 401(k) into the new 401(k), then the $10,000 would not have been part of that rollover, no?
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by iamlucky13 »

an_asker wrote: Wed Jan 12, 2022 1:37 pm
iamlucky13 wrote: Wed Jan 12, 2022 1:21 pm
an_asker wrote: Wed Jan 12, 2022 10:49 am Hmmm... I am confused why you think you were vested in the money that you knew wasn't yours.
Probably because they continued to show the money in his statements for 5 years after ending employment.

Vesting is not exactly a topic of common knowledge, especially for younger workers. I'm pretty sure even a lot of older workers don't do much more with their retirement account than check the balance once a year and probably don't know much about vesting, either. I had never even heard the term until I got a 401k, and was mostly on my own to research why our custodian showed my 401K balance split up as vested and non-vested.

[...]
I'm now mid-career and had not until today ever heard that it is common to continue to show unvested money in account statements for 5 years after termination. When I was laid off from my first job, 60% of my company contributions were removed from my account shortly after termination (5 year incremental vesting, and I had 18 months tenure). Until that actually happened, I hadn't been entirely certain if I had a correct understanding of the concept.
While you are generally probably right in younger workers not knowing about vesting, in this case, as OP brought it up, he's quite aware as to what it is.

Besides (this is for the average younger worker you are referring to), if you are onboarded and are unfamiliar with the term, you can always ask among your peers. Also, usually, when you are onboarded, HR will discuss the 401k option in an orientation session (If my employer does it, I am sure most employers would lol) and explain vesting.
....
Thinking about this a little more, exit interviews / closeout discussions seem like a good time for HR to give employees a reminder about vesting, especially if there is a practice like continuing to track unvested balance for multiple years in case of a future rehire.

I vaguely recall vesting being mentioned in the orientation for my first job, but poorly explained such that I wasn't sure whether it was a topic I might benefit from a primer on, as employers often have lots of extraneous information they bring up in orientations. Two other jobs I've worked did not have a vesting period for employer contributions, and none of the jobs I worked before getting my degree had employer retirement contributions.

I get the impression the OP's knowledge level was similar to mine - maybe they had a rote understanding of vesting is, but not what it practically meant until they checked their transaction history one day and saw an unexpected withdrawal of $10,000 and maybe the word "unvested" in the description.

I know for certain that even though I knew what vesting was, had my account not been adjusted relatively soon after my termination, or there been a clear notice given that the unvested balance will not be cleared out of my account until a certain amount of time, I would have assumed by the time a few months had passed, or at the absolute latest, by the time W2's were issued for the year, that the company had completed any adjustments to be made.
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by drk »

mikejuss wrote: Wed Jan 12, 2022 3:29 pm If the OP had rolled the old 401(k) into the new 401(k), then the $10,000 would not have been part of that rollover, no?
Correct
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8foot7
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by 8foot7 »

neurosphere wrote: Wed Jan 12, 2022 11:14 am
8foot7 wrote: Wed Jan 12, 2022 11:08 am
pshonore wrote: Wed Jan 12, 2022 11:06 am Seems odd they waited 5 years to do that. What would happen if it had been rolled to a TIRA , or another employers 401K plan within a year or two?
In my experience vested un-vested balances are restricted from being rolled until the employer signs off on the transfer.
I realize it's just a typo but figured I'd fix it for you because I'd like to pad my post count. :D
Quite right you are; fixed and credited :sharebeer
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by mikejuss »

drk wrote: Wed Jan 12, 2022 3:32 pm
mikejuss wrote: Wed Jan 12, 2022 3:29 pm If the OP had rolled the old 401(k) into the new 401(k), then the $10,000 would not have been part of that rollover, no?
Correct
Seems cruel to show an employee a match that isn't even his. Never happened to me before. The match is either vested or not there at all. :?:
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by drk »

mikejuss wrote: Wed Jan 12, 2022 5:37 pm Seems cruel to show an employee a match that isn't even his. Never happened to me before. The match is either vested or not there at all. :?:
Well, I don't know about cruel, but it is annoying that every time I use Fidelity's portfolio analysis tools, I have to un-check the box next to a former employer's plan to exclude contributions that will never vest. :oops:
exodusNH
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by exodusNH »

mikejuss wrote: Wed Jan 12, 2022 5:37 pm
drk wrote: Wed Jan 12, 2022 3:32 pm
mikejuss wrote: Wed Jan 12, 2022 3:29 pm If the OP had rolled the old 401(k) into the new 401(k), then the $10,000 would not have been part of that rollover, no?
Correct
Seems cruel to show an employee a match that isn't even his. Never happened to me before. The match is either vested or not there at all. :?:
But if you don't, then you've got to deal with "where's my match?!" questions. The money is exclusively yours unless you leave / get fired / laid off; it makes sense to show it. Plus, I if an employer terminates a plan, any unvested balances vest automatically.
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by mikejuss »

exodusNH wrote: Wed Jan 12, 2022 6:11 pm
mikejuss wrote: Wed Jan 12, 2022 5:37 pm
drk wrote: Wed Jan 12, 2022 3:32 pm
mikejuss wrote: Wed Jan 12, 2022 3:29 pm If the OP had rolled the old 401(k) into the new 401(k), then the $10,000 would not have been part of that rollover, no?
Correct
Seems cruel to show an employee a match that isn't even his. Never happened to me before. The match is either vested or not there at all. :?:
But if you don't, then you've got to deal with "where's my match?!" questions. The money is exclusively yours unless you leave / get fired / laid off; it makes sense to show it. Plus, I if an employer terminates a plan, any unvested balances vest automatically.
And if you do show it, you risk even further confusion. Thus this thread. My vote is to not show it; it's just a sly little piece of red meat.

The next paycheck from my employer is also mine unless I leave, get fired, or get laid off. But it would be silly to tee it up in my bank account ahead of time.
exodusNH
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by exodusNH »

mikejuss wrote: Wed Jan 12, 2022 6:27 pm
exodusNH wrote: Wed Jan 12, 2022 6:11 pm
mikejuss wrote: Wed Jan 12, 2022 5:37 pm
drk wrote: Wed Jan 12, 2022 3:32 pm
mikejuss wrote: Wed Jan 12, 2022 3:29 pm If the OP had rolled the old 401(k) into the new 401(k), then the $10,000 would not have been part of that rollover, no?
Correct
Seems cruel to show an employee a match that isn't even his. Never happened to me before. The match is either vested or not there at all. :?:
But if you don't, then you've got to deal with "where's my match?!" questions. The money is exclusively yours unless you leave / get fired / laid off; it makes sense to show it. Plus, I if an employer terminates a plan, any unvested balances vest automatically.
And if you do show it, you risk even further confusion. Thus this thread. My vote is to not show it; it's just a sly little piece of red meat.

The next paycheck from my employer is also mine unless I leave, get fired, or get laid off. But it would be silly to tee it up in my bank account ahead of time.
The difference is the money is in your account, designed for your exclusive use unless you separate from the company before the vesting period. You are free to invest it as you wish.

You benefit from the gains. I assume the money they remove is the value they put in, not what it has grown to. (Or, in a bad environment, shrunk to, which would hurt.)

By the same logic, tax-deferred balances should have 20% of the balance hidden because that belongs to the US government.
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by mikejuss »

exodusNH wrote: Wed Jan 12, 2022 6:57 pm
mikejuss wrote: Wed Jan 12, 2022 6:27 pm
exodusNH wrote: Wed Jan 12, 2022 6:11 pm
mikejuss wrote: Wed Jan 12, 2022 5:37 pm
drk wrote: Wed Jan 12, 2022 3:32 pm

Correct
Seems cruel to show an employee a match that isn't even his. Never happened to me before. The match is either vested or not there at all. :?:
But if you don't, then you've got to deal with "where's my match?!" questions. The money is exclusively yours unless you leave / get fired / laid off; it makes sense to show it. Plus, I if an employer terminates a plan, any unvested balances vest automatically.
And if you do show it, you risk even further confusion. Thus this thread. My vote is to not show it; it's just a sly little piece of red meat.

The next paycheck from my employer is also mine unless I leave, get fired, or get laid off. But it would be silly to tee it up in my bank account ahead of time.
The difference is the money is in your account, designed for your exclusive use unless you separate from the company before the vesting period. You are free to invest it as you wish.

You benefit from the gains. I assume the money they remove is the value they put in, not what it has grown to. (Or, in a bad environment, shrunk to, which would hurt.)

By the same logic, tax-deferred balances should have 20% of the balance hidden because that belongs to the US government.
I stand corrected. So they left you invest the unvested funds immediately and then watch them grow over the years (all in the hopes of retaining you until the point of when you're fully vested)? How many years of funny money do they give you to play with ahead of time?
Last edited by mikejuss on Wed Jan 12, 2022 7:23 pm, edited 1 time in total.
MrJedi
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by MrJedi »

The plans I've been a part of, both vested and non vested balances are shown. All sources are clearly tracked (i.e. employer match has a separate source/bucket). Everything is invested as you elect, and when a non vested amount is forfeited, all contributions and earnings (if any) from that source are taken out.
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by mikejuss »

MrJedi wrote: Wed Jan 12, 2022 7:18 pm The plans I've been a part of, both vested and non vested balances are shown. All sources are clearly tracked (i.e. employer match has a separate source/bucket). Everything is invested as you elect, and when a non vested amount is forfeited, all contributions and earnings (if any) from that source are taken out.
I love the games that HR departments play. :wink:
SlowMovingInvestor
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by SlowMovingInvestor »

FWIW, options and RSUs also often show value of unvested contributions in accounts, separately as 'unvested'.

I think the idea is that seeing these future payments in 'black and white' serve as an incentive for employees to stick with the company.
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Alto Astral
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by Alto Astral »

Yes, different employers have different vesting schedules for their contributions. For example, an employer may vest x% every year but an additional y% after you complete 3 years. The reason they wait 5 years is, if you went back to work with them, your 3-year clock resumes. Then, when you finish your 3 years, you get the additional y%. In your case all of the employer contribution (x+y%) is vested only after 3 years.
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by MrJedi »

mikejuss wrote: Wed Jan 12, 2022 7:23 pm
MrJedi wrote: Wed Jan 12, 2022 7:18 pm The plans I've been a part of, both vested and non vested balances are shown. All sources are clearly tracked (i.e. employer match has a separate source/bucket). Everything is invested as you elect, and when a non vested amount is forfeited, all contributions and earnings (if any) from that source are taken out.
I love the games that HR departments play. :wink:
What makes it a game? This would be preferential in my opinion so that you can actually see the dollars and investments on the employer side. Otherwise you'd have to somehow figure out how much the employer contributed through the years and how those investments performed and reconcile what actually shows up when it vests.
SpideyIndexer
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by SpideyIndexer »

Is the vested period normally for how long one remains employed after each match amount is contributed by the employer?

Also, is this clawback normally not performed if the employee officially retires? That would seem rather nasty thing to be done in a retirement plan.
SpideyIndexer
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by SpideyIndexer »

Is the vesting period normally for how long one remains employed after each match amount is contributed by the employer? So if he or she leaves, and the vesting period is 3 years, he or she would lose the only employer matches made within 3 years of the termination date?

Also, is this clawback normally not performed if the employee officially retires? That would seem rather nasty thing to be done in a retirement plan.
MrJedi
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by MrJedi »

SpideyIndexer wrote: Wed Jan 12, 2022 8:59 pm Is the vesting period normally for how long one remains employed after each match amount is contributed by the employer? So if he or she leaves, and the vesting period is 3 years, he or she would lose the only employer matches made within 3 years of the termination date?

Also, is this clawback normally not performed if the employee officially retires? That would seem rather nasty thing to be done in a retirement plan.
I've typically seen it as vesting cliffs. Once you're vested then all subsequent contributions are vested right away. I've never heard of what you're describing but plans can vary quite a bit
mikejuss
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by mikejuss »

MrJedi wrote: Wed Jan 12, 2022 8:42 pm
mikejuss wrote: Wed Jan 12, 2022 7:23 pm
MrJedi wrote: Wed Jan 12, 2022 7:18 pm The plans I've been a part of, both vested and non vested balances are shown. All sources are clearly tracked (i.e. employer match has a separate source/bucket). Everything is invested as you elect, and when a non vested amount is forfeited, all contributions and earnings (if any) from that source are taken out.
I love the games that HR departments play. :wink:
What makes it a game? This would be preferential in my opinion so that you can actually see the dollars and investments on the employer side. Otherwise you'd have to somehow figure out how much the employer contributed through the years and how those investments performed and reconcile what actually shows up when it vests.
Looks like a carrot at the end of a stick to me. Others may disagree.
MrJedi
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by MrJedi »

mikejuss wrote: Wed Jan 12, 2022 9:18 pm
MrJedi wrote: Wed Jan 12, 2022 8:42 pm
mikejuss wrote: Wed Jan 12, 2022 7:23 pm
MrJedi wrote: Wed Jan 12, 2022 7:18 pm The plans I've been a part of, both vested and non vested balances are shown. All sources are clearly tracked (i.e. employer match has a separate source/bucket). Everything is invested as you elect, and when a non vested amount is forfeited, all contributions and earnings (if any) from that source are taken out.
I love the games that HR departments play. :wink:
What makes it a game? This would be preferential in my opinion so that you can actually see the dollars and investments on the employer side. Otherwise you'd have to somehow figure out how much the employer contributed through the years and how those investments performed and reconcile what actually shows up when it vests.
Looks like a carrot at the end of a stick to me. Others may disagree.
How would you verify that the employer is contributing the right amount and investing it appropriately otherwise? Or would you try to back everything out several years later when it does vest?
lostinjersey
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by lostinjersey »

mikejuss wrote: Wed Jan 12, 2022 7:23 pm
MrJedi wrote: Wed Jan 12, 2022 7:18 pm The plans I've been a part of, both vested and non vested balances are shown. All sources are clearly tracked (i.e. employer match has a separate source/bucket). Everything is invested as you elect, and when a non vested amount is forfeited, all contributions and earnings (if any) from that source are taken out.
I love the games that HR departments play. :wink:
These ‘games’ are required by a federal law called ERISA.
mikejuss
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by mikejuss »

lostinjersey wrote: Wed Jan 12, 2022 9:38 pm
mikejuss wrote: Wed Jan 12, 2022 7:23 pm
MrJedi wrote: Wed Jan 12, 2022 7:18 pm The plans I've been a part of, both vested and non vested balances are shown. All sources are clearly tracked (i.e. employer match has a separate source/bucket). Everything is invested as you elect, and when a non vested amount is forfeited, all contributions and earnings (if any) from that source are taken out.
I love the games that HR departments play. :wink:
These ‘games’ are required by a federal law called ERISA.
I've never been allowed to invest unvested funds from my employer. Should I be able to, according to ERISA? Now, bully for those who can do so--but my overall point is that being able to invest the money may mislead employees (as it did the OP) into thinking it's theirs, and thus may help employers retain talent.
MrJedi
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by MrJedi »

Yes, I would imagine the entire point of a vesting schedule is typically to help retain employees for that duration. I don't think there is anything misleading about it as long as vested vs unvested is clearly marked. IMO the onus is on the employee to understand what vested and unvested mean. I don't think that's unreasonable.

I have not seen a plan that does not allow investment of unvested amounts, that would irritate me knowing there is dead cash sitting there.
oregoncopflier
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by oregoncopflier »

It happened to me at a previous employer. While legal, it definitely created a lot of ill-will on my part for a trivial amount of savings on their part. In my opinion, any employer who does not immediately vest retirement match for their employees should re-think the practice. That's spoken as someone who has hired 75+ employees at my company and never considered anything except instant vesting.
mikejuss
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by mikejuss »

oregoncopflier wrote: Wed Jan 12, 2022 10:05 pm It happened to me at a previous employer. While legal, it definitely created a lot of ill-will on my part for a trivial amount of savings on their part. In my opinion, any employer who does not immediately vest retirement match for their employees should re-think the practice. That's spoken as someone who has hired 75+ employees at my company and never considered anything except instant vesting.
+1.
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rob
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by rob »

oregoncopflier wrote: Wed Jan 12, 2022 10:05 pm It happened to me at a previous employer. While legal, it definitely created a lot of ill-will on my part for a trivial amount of savings on their part. In my opinion, any employer who does not immediately vest retirement match for their employees should re-think the practice. That's spoken as someone who has hired 75+ employees at my company and never considered anything except instant vesting.
I hate to calc the money I've "lost" or not gained over the years... Most employers lumped it with my contributions and it was either a few clicks or a phone call to get it broken out... Just this week I had to call my current admin to try and get the break up (I'm not vested for another few years, so I know it's a fake $ value if I take what is shown).
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien
Marylander1
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by Marylander1 »

MrJedi wrote: Wed Jan 12, 2022 9:20 pm How would you verify that the employer is contributing the right amount and investing it appropriately otherwise? Or would you try to back everything out several years later when it does vest?
Agreed! My 401k accounts have separated the balances for employee and employer contribution, and under employer it also notes the portion that is vested

In my experience, the employee controls the investment of the entire contents, including the unvested balance. Rather than a secret additional account the employee controls that will suddenly appear as it vests, it seems both logical and desirable to report the vested and unvested employer contributions.

Marylander1
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Re: Employer 401k contribution taken back after 5 years of leaving the employer.

Post by Marylander1 »

oregoncopflier wrote: Wed Jan 12, 2022 10:05 pm It happened to me at a previous employer. While legal, it definitely created a lot of ill-will on my part for a trivial amount of savings on their part. In my opinion, any employer who does not immediately vest retirement match for their employees should re-think the practice. That's spoken as someone who has hired 75+ employees at my company and never considered anything except instant vesting.
I'm curious: for a defined benefit pension plan, would you also expect instant vesting? I suspect the concept started there and transferred to defined contribution plans like 401ks.

I'm imagining someone young who works for a week before quitting, and under an instant vesting pension is eligible for 43 cents per month when they retire

Marylander1
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