Vesting schedules mean a 401(k) match can take years to own

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44% of plans offer a ‘rare’ advantage

Companies use different timelines, or vesting schedules, to determine how long it takes for savers to fully own the employer contributions.

In some cases, they must work at a company at least six years before the funds are theirs. They risk forfeiting some of the money — and investment earnings — if they walk away early.

A worker retains complete ownership of their match when it is 100% vested. (One important note: An employee always fully owns their own contributions.)

How to budget, invest and catch up on retirement savings

More than 44% of 401(k) plans offer immediate full vesting of a company match, according to the PSCA survey. This means the worker owns the whole match right away — the best outcome for savers. That share is up from 40.6% in 2012.

For the rest, vesting timelines may vary

The rest, 56% of 401(k) plans, use either a “cliff” or “graded” schedule to determine the timeline.

Cliff vesting grants ownership in full after a specific point. For example, a saver whose 401(k) uses a three-year cliff vesting fully owns the company match after three years of service. However, they get nothing before then.

Graded schedules phase in ownership gradually, at set intervals. A saver with a five-year graded schedule owns 20% after year one, 40% after year two, and so on until reaching 100% after the fifth year.

For example, someone who gets 40% of a $5,000 match can walk away with $2,000 plus 40% of any investment earnings on the match.

Federal rules require full vesting within six years.

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