Author Topic: Career Advice: 401K Yearly Vestment Schedule  (Read 4870 times)

0 Members and 1 Guest are viewing this topic.

Career Advice: 401K Yearly Vestment Schedule
« on: August 10, 2020, 02:14:36 PM »

Online Smartacus

  • Don Chaney
  • *
  • Posts: 1832
  • Tommy Points: 165
Hello everyone, off topic but I have a situation going on at work that is killing me.

After 2 years of working at my biotech firm the company president has finally decided to offer me and the other employee that we just hired a 401 K with a 3% full match and half match for anything over 3% up to 5%. With this company I wasn't expecting the biggest match so I was initially just happy with getting anything. That was before I realized what the vestment schedule meant.

With the 401K I can only get a percentage of the employer match based based on time spent paying into the program.

1 Year 0%
2 Year 20%
3 Year 40%
4 Year 60%
5 Year 80%
6 Year 100%

So despite being with the company for 2 years now I wouldn't see the full employer match of anything I put in for basically a decade.

I guess my question is how common is this type of arrangement? I have had 401K's in the past with higher matches and no vestments. This schedule just feels like a slap in the face. I even clarified to make sure that I wasn't grandfathered into the 2 years with the company that I've already put in and no he says no it's based on years that you've been paying into the 401K.

Sorry if this isn't the best place for this question but it's driving me nuts. I am not usually overly emotional but I'm irrationally angry about this and am considering just refusing it out of spite and setting up my own Roth IRA. I appreciate any perspectives that you all might have.

Re: Career Advice: 401K Yearly Vestment Schedule
« Reply #1 on: August 10, 2020, 02:25:11 PM »

Offline Roy H.

  • Forums Manager
  • James Naismith
  • *********************************
  • Posts: 43762
  • Tommy Points: -27026
  • 33,333 posts and counting . . .
It’s not a very generous benefits package up front.  And, I would take it a bit personally that you and the new hire are at the same level of vesting.

That said, I have no idea how much more / less you’d be making in a Roth compared to a modest employer match.  And, if this is a long term job for you, the 100% match after six years is decent.

Talk to HR, too.  Do you need to max out to vest, or is any amount in your 401k every year enough?

And, just for perspective:  our 401k is up 18.98% since January 1, and up 27.36% in the past year.  Even a 20% match can add up.
Once a CrotoNat, always a CrotoNat. CelticsBlog Draft Champions, 2009 & 2012.

Re: Career Advice: 401K Yearly Vestment Schedule
« Reply #2 on: August 10, 2020, 02:28:49 PM »

Offline slamtheking

  • Kevin McHale
  • ************************
  • Posts: 24089
  • Tommy Points: 9416
did you get clarity on whether your 2 years in the company counts towards the vesting?  The company I was in when it went from a pension plan to a 401K plan counted my time in the company for vesting purposes.  Hopefully you're in a similar situation where your 2 years of time there will count for something.

Re: Career Advice: 401K Yearly Vestment Schedule
« Reply #3 on: November 03, 2020, 09:33:26 AM »

Offline Big333223

  • NCE
  • Paul Silas
  • ******
  • Posts: 6188
  • Tommy Points: 658
did you get clarity on whether your 2 years in the company counts towards the vesting?  The company I was in when it went from a pension plan to a 401K plan counted my time in the company for vesting purposes.  Hopefully you're in a similar situation where your 2 years of time there will count for something.

This was my question as well.

Sorry if this is old news and not a concern anymore but this is my thought: I'm no expert but I think 5 years, give-or-take a year, is fairly normal to get fully vested. If you're not actively planning on leaving, it seems like a good idea.

Also, even if there was no match involved, putting something away into a 401K is a good idea and the younger you start, the better.
1957, 1959, 1960, 1961, 1962, 1963, 1964, 1965, 1966, 1968, 1969, 1974, 1976, 1981, 1984, 1986, 2008

Re: Career Advice: 401K Yearly Vestment Schedule
« Reply #4 on: November 03, 2020, 10:00:46 AM »

Offline Darth_Yoda

  • Bill Walton
  • *
  • Posts: 1121
  • Tommy Points: 52
Thats kinda bad.

If you invested 5 K per year (166K salary @3%) then the scale would be as follows:

Year        Your investment                 Their Match
1               5000                                      0
2               5000                                      1000
3               5000                                      2000
4               5000                                      3000
5               5000                                       4000
6                5000                                     5000
Totals         30,000                                  15,000

That works out to 6 years at 1.5% for the company if you pay 3%.

Also, how long do you have to keep money in the 401K until they release their portion to you? 2 years? 5? 10? So if you were offered a better job elsewhere can you even take their portion with you?
'21 Historical Draft
PG: Kyle Lowry / Mookie Blaylock / Mark Jackson
SG: Reggie Miller / Jeff Hornacek / Nick Anderson
SF: George Gervin / George McGinnis / Kyle Korver
PF: Connie Hawkins / Serge Ibaka / Josh Smith
C: Clint Capela / Bill Laimbeer / Jusuf Nurkic

Re: Career Advice: 401K Yearly Vestment Schedule
« Reply #5 on: November 03, 2020, 12:06:38 PM »

Offline Moranis

  • Kevin McHale
  • ************************
  • Posts: 24230
  • Tommy Points: 1171
6 years isn't atypical for full vesting and yours at least isn't a cliff vesting.   They will still do the full match every year it just comes into play if you leave before full vestment.  If you left early you'd get your money plus whatever the company matched according to your vesting level.
2021 Historical Draft - 5th Pick - Raptors
PG - Tiny Archibald 73, Don Buse 77, Terrell Brandon 96
SG - Chet Walker 67, Michael Cooper 87, Raja Bell 06
SF - Predrag "Peja" Stojakovic 04, Kiki Vandeweghe 87, Robert Covington 18
PF - Karl Malone 97, Spencer Haywood 73, David West 08
C - Ben Wallace 04, George Mikan 50, Al Jefferson 08

Re: Career Advice: 401K Yearly Vestment Schedule
« Reply #6 on: November 03, 2020, 12:16:36 PM »

Offline Erik

  • Bill Walton
  • *
  • Posts: 1281
  • Tommy Points: 200
  • The voice of reason
Quote
Sorry if this isn't the best place for this question but it's driving me nuts. I am not usually overly emotional but I'm irrationally angry about this and am considering just refusing it out of spite and setting up my own Roth IRA. I appreciate any perspectives that you all might have.

My advice would be to consider the entire package within a job and not just one aspect. For example, my company pays less salary than competitors, but their benefits programs are off the charts. After adding everything up, they're paying out more than the rest.

Perhaps they pay better salary than competitors? This would effectively give you the choice on whether or not you want have a larger 401k or pocket the "matching" and throw it into a taxable account or put it towards your IRA limit for the year.

The overall strategy of vesting is obvious -- companies want to lock you in and not waste all of the time and money they spent recruiting and training you for you to walk out a few years later.

A 401k still makes a ton of sense for most people even with 0 matching assuming you've contributed to all of the better avenues first*. If it turns out that this program is correct, you should still consider investing. The tax benefits of either t401k/r401k are too good to pass up and it will match a bit later. IMO you shouldn't be emotional about money decisions.

* https://www.bogleheads.org/wiki/Prioritizing_investments <-- great resource for investing priority.
« Last Edit: November 03, 2020, 12:30:06 PM by Erik »