• Page :
  • 1
  • Text Only
Voting History
rated:
I worked for a company for almost 3 years. I quit in February of this year. During this time, I built up a 401k of $41,xxx. $36,xxx came from my contributions, and $4,xxx came from employer matching. I called the brokerage about rolling it over into a Rollover IRA at the brokerage of my choice and they said that at this point in time, I'm 20% vested, so the amount eligible for rollover is $37,xxx. This part I understand.

Here's what I don't understand. I asked what will happen to the non-vested funds, 80% of the employer contribution if I leave the 401k as is. The lady said that they will not return those funds to the employer unless they asked for it. She made it sound like this isn't something that happens often. However, if I move the money at some point in the future, I would lose the employer matching. I cannot see any sort of company just losing track of money that they contributed to their employees retirement plans and not asking for it back. However I'm probably 30-40 years away from retirement, I don't want to keep $41,xxx in this 401k forever, I would like to consolidate my investments.

So did the lady on the phone tell me that "this doens't happen very often" in order to persuade me in keeping my money with her brokerage firm, or is it really not a common practice for employers to ask for the non-vested employer contributions back?

Member Summary
Most Recent Posts
That may be the investment income on the matching contribution.

I was at a company in the 80s with a profit sharing plan ... (more)

BrlDsguise (Mar. 28, 2012 @ 11:50a) |

Nothing wrong with wanting to gain more knowledge about how things work in the industry, IMHO.

kettledrum (Mar. 28, 2012 @ 12:02p) |

I think this is good advice. Being curious is a complete waste of time. Especially if you're a girl.

:rollseyes:

DVDAPEX (Mar. 28, 2012 @ 12:08p) |

  • Also categorized in:
Thanks for visiting FatWallet.com. Join for free to remove this ad.

The money isn't actually contributed by the employer until it is vested. It is simply a notational liability.

InTrouble said:   The money isn't actually contributed by the employer until it is vested. It is simply a notational liability.

Your answer is terribly wrong unless you are talking about a defined benefit plan. For defined contribution plans the employer must contribute all funds for matching or profit sharing 2 1/2 months after their tax year end.

OP, the answer to your question is it depends on how the plan is written. Most retirement plans that I have audited take forfeited funds and use those to offset the expenses of the plan. Some take those funds and spread them out to the remaining participants based on some formula. The lady on the phone probably had no idea what she was talking about

BigTR said:   InTrouble said:   The money isn't actually contributed by the employer until it is vested. It is simply a notational liability.

Your answer is terribly wrong unless you are talking about a defined benefit plan. For defined contribution plans the employer must contribute all funds for matching or profit sharing 2 1/2 months after their tax year end.

OP, the answer to your question is it depends on how the plan is written. Most retirement plans that I have audited take forfeited funds and use those to offset the expenses of the plan. Some take those funds and spread them out to the remaining participants based on some formula. The lady on the phone probably had no idea what she was talking about



So how would I find out what the plan does? Is there any reason why I shouldn't roll it over into a Rollover IRA at a brokerage where I have most of my investments?

Why does it matter what the plan does? You have already quit, so you can't get that remaining 80%. Stop wasting your time thinking about it.

nasheedb said:   I worked for a company for almost 3 years. I quit in February of this year. During this time, I built up a 401k of $41,xxx. $36,xxx came from my contributions, and $4,xxx came from employer matching. I called the brokerage about rolling it over into a Rollover IRA at the brokerage of my choice and they said that at this point in time, I'm 20% vested, so the amount eligible for rollover is $37,xxx. This part I understand.

Here's what I don't understand. I asked what will happen to the non-vested funds, 80% of the employer contribution if I leave the 401k as is. The lady said that they will not return those funds to the employer unless they asked for it. She made it sound like this isn't something that happens often. However, if I move the money at some point in the future, I would lose the employer matching. I cannot see any sort of company just losing track of money that they contributed to their employees retirement plans and not asking for it back. However I'm probably 30-40 years away from retirement, I don't want to keep $41,xxx in this 401k forever, I would like to consolidate my investments.

So did the lady on the phone tell me that "this doens't happen very often" in order to persuade me in keeping my money with her brokerage firm, or is it really not a common practice for employers to ask for the non-vested employer contributions back?

Regarding the highlighted line above: Note that you "lost" the unvested portion the day you quit. Simply by keeping the money inside the plan instead of rolling over to an IRA, you are not going to get that unvested portion back. The one possible exception is if you were to go back to the same employer in future and they give you credit for past employment with them (this is more common in government jobs).

My plan rules are in my employee handbook, and held by our HR office. Do you still have a copy of your employee handbook?
If not, your choice is to either 1) ask someone you might still be friends with to send you a copy, or 2) contact your old HR department and ask.
But if you call and ask, you up their chances of asking for their money back.

Reasons to not roll it over to your brokerage account:
1) does your 401(k) have products/mutual funds that you would pick over what's available in your IRA?
2) for other FWFer's. What sort of statute of limitations does his company have? Can they ask for the $4,xxx in 15 years? If so, can they also ask for interest? Or does the old employer have to ask for the matched funds within a certain timeframe? If you rollover into an IRA, repaying your old employer may prove to be difficult, and could be a compelling reason to not rollover.

nasheedb said:   Is there any reason why I shouldn't roll it over into a Rollover IRA at a brokerage where I have most of my investments?
One reason to keep it in the 401k is if it gives you access to funds (that you want to invest in) that you would otherwise not have access to. E.g., Index funds with ultra-low expense ratio.

it's not your money

the only I can think of as to why this might matter is that a plan might allow you to return to work at the company and continue your vesting

but I am only guessing, you would have to contact your plan administrator

imbatman said:   What sort of statute of limitations does his company have? Can they ask for the $4,xxx in 15 years? If so, can they also ask for interest? Or does the old employer have to ask for the matched funds within a certain timeframe? If you rollover into an IRA, repaying your old employer may prove to be difficult, and could be a compelling reason to not rollover.

The matched funds are not being paid to the OP - he said that.

Either they will be refunded back to his employer or they will be distributed to the remaining participants depending on how the plan works.

nasheedb said:   I worked for a company for almost 3 years. I quit in February of this year. During this time, I built up a 401k of $41,xxx. $36,xxx came from my contributions, and $4,xxx came from employer matching. I called the brokerage about rolling it over into a Rollover IRA at the brokerage of my choice and they said that at this point in time, I'm 20% vested, so the amount eligible for rollover is $37,xxx. This part I understand.

Here's what I don't understand. I asked what will happen to the non-vested funds, 80% of the employer contribution if I leave the 401k as is. The lady said that they will not return those funds to the employer unless they asked for it. She made it sound like this isn't something that happens often. However, if I move the money at some point in the future, I would lose the employer matching. I cannot see any sort of company just losing track of money that they contributed to their employees retirement plans and not asking for it back. However I'm probably 30-40 years away from retirement, I don't want to keep $41,xxx in this 401k forever, I would like to consolidate my investments.

So did the lady on the phone tell me that "this doens't happen very often" in order to persuade me in keeping my money with her brokerage firm, or is it really not a common practice for employers to ask for the non-vested employer contributions back?


You are not going to get to keep the 80% of the employer's contribution whether you leave it or not. Possibly they leave it in your account in the event you go back to work for the company - but unless you do your eventual distibution will always be net of the forfeited contribution.

Plans have rules regarding payouts. Typically, a plan will say if your balance is under $5,000, you must take the distribution of funds. If it's over that amount, you can choose to leave the funds in the plan. OP, you need to read your rules. Call your HR department and get a copy of your summary plan description.

As others have said, stop spending time worrying about your plan's rules for forfeitures. They are meaningless to you.

imbatman said:   
2) for other FWFer's. What sort of statute of limitations does his company have? Can they ask for the $4,xxx in 15 years? If so, can they also ask for interest? Or does the old employer have to ask for the matched funds within a certain timeframe? If you rollover into an IRA, repaying your old employer may prove to be difficult, and could be a compelling reason to not rollover.


There's no asking for the funds by the employer. They sit in OP's account just waiting for a distribution to occur. When the distribution occurs, the forfeited amount goes to the Plan Sponsor and/or is re-distributed to the other participants. The Plan Administrator (ie Fidelity) ensures that upon distribution, the employee only gets what they are due.

Thanks for the input everyone. I will try to roll the 401k over and consolidate.

My assumption has always been that when the company contributes the money, they indicate the vesting schedule and the retirement plan handles it after that. When the employee is terminated they can ask for the money back, but if they forget about it and don't take it back, then it eventually vests to the employee. I didn't think the employer would be updating them to let them know what is vested when, as that's next to impossible for the employer to track (taking into account the gains/losses).

I could be entirely wrong about that. However when I worked at a previous employer (more than a decade ago) we had a plan with 1 year vesting. After I was laid off, I didn't roll over the plan until 2 years later, but when I did, I'm fairly certain I got everything.

BigTR said:   OP, the answer to your question is it depends on how the plan is written. Most retirement plans that I have audited take forfeited funds and use those to offset the expenses of the plan. Some take those funds and spread them out to the remaining participants based on some formula. The lady on the phone probably had no idea what she was talking about

I have a forfeiture section on my statement (contribution, matching, and rollover are the other three source sections). These are from other folks who left before full vesting, their employer contributions (already put into the plan) were split up to the other folks still active employees in the program. As mentioned, it is up to how the plan is designed.

Rasheed

LordKronos said:   My assumption has always been that when the company contributes the money, they indicate the vesting schedule and the retirement plan handles it after that. When the employee is terminated they can ask for the money back, but if they forget about it and don't take it back, then it eventually vests to the employee. I didn't think the employer would be updating them to let them know what is vested when, as that's next to impossible for the employer to track (taking into account the gains/losses).

I could be entirely wrong about that. However when I worked at a previous employer (more than a decade ago) we had a plan with 1 year vesting. After I was laid off, I didn't roll over the plan until 2 years later, but when I did, I'm fairly certain I got everything.


Sorry, but your assumption is incorrect. In every plan I have ever seen, vesting only occurs while you are an active employee. If the plan had a policy of only 1 year to vest and you were employed more than 1 year, you should have been paid everything no matter how long you left it in there.

Employers never ask for money back, they just don't disburse it. The simple way to look at it is the Plan "Owns" all the assets. They are typically segregated into your own account, but they aren't yours. You can't just walk up to Fidelity and say "I want to make a withdrawal." There are rules, taxes, penalties, etc., all that are administered by the plan administrator.

rasheedb said:   I have a forfeiture section on my statement (contribution, matching, and rollover are the other three source sections). These are from other folks who left before full vesting, their employer contributions (already put into the plan) were split up to the other folks still active employees in the program. As mentioned, it is up to how the plan is designed.

Rasheed


You have a very generous employer. That is one option for forfeiture...most employers use it to offset plan expenses though.

BigTR said:   Sorry, but your assumption is incorrect. In every plan I have ever seen, vesting only occurs while you are an active employee. If the plan had a policy of only 1 year to vest and you were employed more than 1 year, you should have been paid everything no matter how long you left it in there.

I think you just pointed out my mistake. I was under the impression that each monthly contribution had to vest individually on it's own schedule...sort of an ongoing incentive to stay employed. But apparently that's not how it works. Once you've been there for the required time, all past contributions become vested, and all future contributions are vested immediately. So in my case, I was there more than a year so everything was vested. I was thinking only those contributions made a year or more earlier would have been vested.

Like I said, that was more than a decade ago. I wasn't very financially interested back then, and since then everything has been 100% vested from day 1, so it's not something I've had to concern myself with, thus never really learned how it works. Thanks for clearing that up.

You should check your plan details. When i left my employer I was surprised to learn I retained 50% of unvested stock provided I abide by certain rules. This probably doesn't apply in your case but you never know

LordKronos said:   

I think you just pointed out my mistake. I was under the impression that each monthly contribution had to vest individually on it's own schedule...sort of an ongoing incentive to stay employed. But apparently that's not how it works. Once you've been there for the required time, all past contributions become vested, and all future contributions are vested immediately. So in my case, I was there more than a year so everything was vested. I was thinking only those contributions made a year or more earlier would have been vested.

Like I said, that was more than a decade ago. I wasn't very financially interested back then, and since then everything has been 100% vested from day 1, so it's not something I've had to concern myself with, thus never really learned how it works. Thanks for clearing that up.


One thing to clarify: there's no "vesting" for an employee's contributions. That money is yours as soon as you defer it.

Employers can choose to have their matching and/or profit sharing contributions vest over a set period of time. You are on point in that each employer contribution does not vest individually.

The simplest thing to do is roll out your money and the vested match and be done with it. If you really want to try to get that last few grand, you can leave the 401k account open and wait enough years that the match would have vested if you were an employee the whole time. Then try to do a rollover of the full amount and see if there's a bug in their accounting system that lets you.

rasheedb said:   BigTR said:   OP, the answer to your question is it depends on how the plan is written. Most retirement plans that I have audited take forfeited funds and use those to offset the expenses of the plan. Some take those funds and spread them out to the remaining participants based on some formula. The lady on the phone probably had no idea what she was talking about

I have a forfeiture section on my statement (contribution, matching, and rollover are the other three source sections). These are from other folks who left before full vesting, their employer contributions (already put into the plan) were split up to the other folks still active employees in the program. As mentioned, it is up to how the plan is designed.

Rasheed


So that explains why I am still seeing a small employer matching (less than $10 per quarter) on my statement even though my company stopped matching more than a year ago!

lydiachang said:   rasheedb said:   BigTR said:   OP, the answer to your question is it depends on how the plan is written. Most retirement plans that I have audited take forfeited funds and use those to offset the expenses of the plan. Some take those funds and spread them out to the remaining participants based on some formula. The lady on the phone probably had no idea what she was talking about

I have a forfeiture section on my statement (contribution, matching, and rollover are the other three source sections). These are from other folks who left before full vesting, their employer contributions (already put into the plan) were split up to the other folks still active employees in the program. As mentioned, it is up to how the plan is designed.

Rasheed


So that explains why I am still seeing a small employer matching (less than $10 per quarter) on my statement even though my company stopped matching more than a year ago!


That may be the investment income on the matching contribution.

I was at a company in the 80s with a profit sharing plan with 10-year vesting that started out a 0% for the first couple went up from there. Employees with 8 years were still only 60% vested because they got an additional 20% in each of the final two years. Accumulated $20K almost entirely from forfeitures (the company rarely contributed), the plan went to full vesting in 6 years when vesting rules changed and I kept it all when I left after 7 years.

pthor1231 said:   Why does it matter what the plan does? You have already quit, so you can't get that remaining 80%. Stop wasting your time thinking about it.

Nothing wrong with wanting to gain more knowledge about how things work in the industry, IMHO.

pthor1231 said:   Why does it matter what the plan does? You have already quit, so you can't get that remaining 80%. Stop wasting your time thinking about it.

I think this is good advice. Being curious is a complete waste of time. Especially if you're a girl.

:rollseyes:



Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.

Thanks for visiting FatWallet.com. Join for free to remove this ad.

TRUSTe online privacy certification

While FatWallet makes every effort to post correct information, offers are subject to change without notice.
Some exclusions may apply based upon merchant policies.
© 1999-2014