Author Topic: 401k, not fully vested, laid off - question  (Read 5699 times)

geekette

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401k, not fully vested, laid off - question
« on: September 01, 2013, 09:38:11 PM »
My DH was laid off after less than two years with that company, and the company's 401k has a three year vesting schedule.  His account on Fidelity currently shows about $2500 as not vested (which is odd because they did contribute $3k early this calendar year, plus $3k last year).  I really expected this money to be clawed back shortly after mid-July, his official last day, or maybe in mid August after his 4 weeks severance, but no.  It's still sitting there in the account as unvested.  It just seems odd.

I can't imagine that he's the only one in the company who's not yet vested (they laid off 1300 people). I'm curious if anyone else has been laid off before fully vesting - did they take the money back?  Do these things take a long time?  I'm also curious if they take back a specific dollar amount, or do they remove exactly the number of shares in the funds that were bought with the match?  I do track that in Quicken, but it would be a PAIN to undo.

step_away

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Re: 401k, not fully vested, laid off - question
« Reply #1 on: September 02, 2013, 02:29:42 AM »
When I left my previous job before the 5-yr vesting period, the unvested amount showed for several years before it was eventually forfeited.  Leaving an unvested amount like that in my accounting is mighty inefficient of the employer (i.e. the fund could have been re-appropriated to current employees' matching requirements to free up cash flow for other business purposes).

In your case, I don't find the the $2.5K unvested odd.  1 year of unvested service out of three years is about 1/3 of the total $6K matching (equivalent to $2K) assuming proportional vesting service for all the matching.  The additional unvested $500K could have been the return of the $2K unvested principal.  What I found surprising was that your DH's employer didn't fully vest the 401K to earn some goodwill with the layoffs.
« Last Edit: September 02, 2013, 02:38:50 AM by step_away »

geekette

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Re: 401k, not fully vested, laid off - question
« Reply #2 on: September 02, 2013, 09:33:55 AM »
Years?!?  Wow.

I thought that on a three year schedule he wouldn't vest in the second third until after 2 years, so I figured he'd only keep 2k of the 6k.

I, too, hoped they would vest the 401k money, but they were very generous with the other parts of the severence package.

I was hoping to pull this and his other 401k from Fidelity over to Vanguard, so I'm hoping this settles out soon.
« Last Edit: September 02, 2013, 09:35:58 AM by geekette »

Magnum666

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Re: 401k, not fully vested, laid off - question
« Reply #3 on: September 02, 2013, 09:50:23 AM »
I actually left a job in 2008 with a portion of my 401k not vested.  It remained in my 401k account for three years when I ended up returning to the company in 2011. After working another year to get fully vested I was able to keep the unvested portion that had stayed in my account.  Luckily I never  rolled it over to an IRA during that time which I had considered doing.

This probably varies by employer though.

step_away

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Re: 401k, not fully vested, laid off - question
« Reply #4 on: September 02, 2013, 11:24:43 AM »
I thought that on a three year schedule he wouldn't vest in the second third until after 2 years, so I figured he'd only keep 2k of the 6k.

...

I was hoping to pull this and his other 401k from Fidelity over to Vanguard, so I'm hoping this settles out soon.

IIRC all of my employer matchings were supposed to vest after 5 years.  The new matching will also vest based on service tenure already rendered and doesn't start over at every matching.

You should have no problem rolling to Vanguard.  The unvested amount will be forfeited then and there upon transfer. 

In my situation I did refrain from transferring my 401K in case I go back to my prior employment as I did hear cases like Magnum666.  Seeing the unvested amount was kind of annoying though.
« Last Edit: September 02, 2013, 11:39:19 AM by step_away »

kkbmustang

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Re: 401k, not fully vested, laid off - question
« Reply #5 on: September 02, 2013, 01:00:09 PM »
If your husband was part of a layoff including 1300 people, it's possible that this could trigger what's called a partial termination of the 401(k) plan which requires that all of those 1300 must be fully vested in their employer matching/profit sharing contributions. The general rule (although not black and white) is if 20% of plan participants are involuntarily terminated, they must be fully vested. Make sure he determines this. He should ask HR or the benefits department.

Also, if he leaves his account intact (i.e., no rollover) and the company is later sold, it's possible that all of the accounts will be fully vested.

I'd ask about the partial termination thing.

footenote

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Re: 401k, not fully vested, laid off - question
« Reply #6 on: September 02, 2013, 01:06:01 PM »
Some plans do vest gradually over time (ex: 1/3 vested after 1 yr, 2/3 after 2 yr, and 100% after year 3).

However, other plans "cliff vest," meaning you are 0% vested until the end of the vesting period, at which point you are 100% vested. Read the plan documents to figure out your DH's former company's vesting rules.
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geekette

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Re: 401k, not fully vested, laid off - question
« Reply #7 on: September 02, 2013, 09:25:20 PM »
It's not cliff vesting since less than $2500 of their $6000 contribution is unvested, and since only 10% were laid off, I don't think that partial termination rule would apply. 

I think it's just going to remain a mystery until something triggers a change (he won't call).




BC_Goldman

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Re: 401k, not fully vested, laid off - question
« Reply #8 on: September 02, 2013, 11:08:51 PM »
That layoff tidbit about x% of employees is new to me. Does that include a contractor losing a contract and all employees being picked up by the new one? If so, I might be able to make a case for the 3K of unvested money in one of my 401k accounts. They lost the contract and were replaced 6 weeks from my 2 year anniversary when I would have been 20% vested.

kkbmustang

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Re: 401k, not fully vested, laid off - question
« Reply #9 on: September 03, 2013, 10:17:34 AM »
That layoff tidbit about x% of employees is new to me. Does that include a contractor losing a contract and all employees being picked up by the new one? If so, I might be able to make a case for the 3K of unvested money in one of my 401k accounts. They lost the contract and were replaced 6 weeks from my 2 year anniversary when I would have been 20% vested.

I don't know off the top of my head, but the 20% isn't a hard and fast rule. It's a very specific facts and circumstances analysis with a variety of factors increasing or decreasing the numerator and denominator. It's a calculation you can't just do in five seconds, but as a guideline it works to know whether an employer needs to dig deeper. It's also not all at once, could be over a year's time (in other words, could include multiple layoff waves).

TurboLT

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Re: 401k, not fully vested, laid off - question
« Reply #10 on: September 03, 2013, 04:39:45 PM »
I'm still showing a ~$400 unvested retirement balance from an internship I had in 2009.  I think Fidelity leaves it that way permanently in the event you get rehired with the company.  I wish they'd take it out though; it's annoying to constantly subtract from totals!

kkbmustang

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Re: 401k, not fully vested, laid off - question
« Reply #11 on: September 03, 2013, 05:54:15 PM »
I'm still showing a ~$400 unvested retirement balance from an internship I had in 2009.  I think Fidelity leaves it that way permanently in the event you get rehired with the company.  I wish they'd take it out though; it's annoying to constantly subtract from totals!

They will forfeit after five years (not necessarily calendar years, could be plan years) in the event you return to employment with that employer. That's required by Internal Revenue Code and ERISA.

geekette

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Re: 401k, not fully vested, laid off - question
« Reply #12 on: September 03, 2013, 08:06:04 PM »
I'm still showing a ~$400 unvested retirement balance from an internship I had in 2009.  I think Fidelity leaves it that way permanently in the event you get rehired with the company.  I wish they'd take it out though; it's annoying to constantly subtract from totals!

They will forfeit after five years (not necessarily calendar years, could be plan years) in the event you return to employment with that employer. That's required by Internal Revenue Code and ERISA.

Ah, thank you for this info.  Unfortunately, it's going to drive me nuts for 5 years, then, unless I yank the account (or he goes back to work for them).  I'm the numbers person, and it looks, from going deeper in Fidelity's site, that he's 66% vested (even though he only worked there for 19 months of the three year vesting period).  So the unvested portion will continue to grow for 5 more years, and then disappear.