Author Topic: One year waiting period for 401(k)?  (Read 9870 times)

jfer_rose

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One year waiting period for 401(k)?
« on: September 26, 2015, 05:21:30 PM »
I have a job offer. Whoo hoo, exciting news!! The company offers a 401(k), however you have to be employed at the company for a year before you are eligible. Once eligible, there is some employer matching, however the employer matches don't vest for 2 years.

Is this type of situation standard or common? I don't understand why they make you wait a year to join when they also have the vesting schedule for employer matches.

I'm aiming for FI in about 8 years, but I fear that losing a year of tax-advantaged savings could really delay me (I max my 457(b) at my current job. I also max out an IRA each year.

Has anyone had a similar experience? Do you have any thoughts?

use2betrix

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Re: One year waiting period for 401(k)?
« Reply #1 on: September 26, 2015, 05:26:56 PM »
It's all over the place. That's pretty bad, though. I think it's pretty bad some companies make you wait that long, then the vesting is even worse. If you plan to be there many years it's not as bad.

My current employer matches up to 4% and I am 100% vested after Day 1, eligible to start participating after my first full month of work.

That being said, my last place sucked. I just rolled that 401k over last week and learned I lost the petty company contribution.

Kaikou

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Re: One year waiting period for 401(k)?
« Reply #2 on: September 26, 2015, 06:06:54 PM »
Yeah no good. Think of it as part of your compensation package. Are you getting value? What are other companies offering?

FIreDrill

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Re: One year waiting period for 401(k)?
« Reply #3 on: September 26, 2015, 06:23:02 PM »
The company I work for makes you wait 1 year before becoming eligible for their 401k.  BUT....  They have an insane matching program.  They match 100% up to 10% of your salary.   They are also on a 6 year vesting schedule.  There isn't really any set standard from what I can see so each company will differ with their eligibility,  matching, and vesting rules.  If the pay is good and you could see yourself there for 8 years I wouldn't let this detour you too much.  Maybe use it as a reason to negotiate more pay.

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Rosy

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Re: One year waiting period for 401(k)?
« Reply #4 on: September 26, 2015, 06:34:13 PM »
Every company does their own thing.
Twice I worked for a place where you had to be there for 5yrs or 6 yrs before you were vested in their pension plan. The first one changed to a 401K thankfully something like a month after the 5yrs were up - so today I receive an annuity from that vested pension - small, but hey:)
The second company restructured three months before my 6yrs were up and I lost out - that was a huge bummer as I was making near 100K and I'd have nearly $650 monthly extra income on that one:(

Everybody else had a standard one year waiting period and only a 3% match.

Mr. R. has a 401K that requires a six month waiting period before you can participate, but they do match 6% and offer profit sharing and bonus.

Mull it over and think about re-negotiating something more in your favor - can't hurt to try.
« Last Edit: September 26, 2015, 06:37:17 PM by Rosy »

freezerburn

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Re: One year waiting period for 401(k)?
« Reply #5 on: September 26, 2015, 06:43:31 PM »
Congrats on your job offer!

I've had a similar experience. The wait time to join the 401(k) at my current job is one year from start date, then a further year (defined as 2 years from your start date) until you're vested. They have a 4% match, which isn't great by my industry standards, but the plan offers good fund choices and they're increasing the match starting next year.

My previous job was at a much larger employer in the same field and had a one year wait time to join. You were 100% vested from the start of enrollment, but the match was somewhere between 1 and 2% with poor fund choices.

My current plan is better all around, though I have to say that once I became 100% vested at that two year mark, I started to feel much more free to look for jobs elsewhere, so if their goal is to incentivize staff retention with the wait times then it was working on me.

TomTX

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Re: One year waiting period for 401(k)?
« Reply #6 on: September 26, 2015, 07:07:27 PM »
Negotiate your prior experience as seniority/time-in-grade/whatever. Get the waiting periods waived. They can do it.

I negotiated a 5% increase in starting pay with the State, after EVERYONE I asked told me it was impossible to negotiate.

A friend of mine retired from the State and went to work for the Feds. He negotiated all his State time as Fed seniority since he was working with Fed dollars in a .gov job.  So, instead of getting the new employee vacation accrual, he started out at the max vacation accrual, et cetera.
« Last Edit: September 26, 2015, 07:11:38 PM by TomTX »

jfer_rose

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Re: One year waiting period for 401(k)?
« Reply #7 on: September 27, 2015, 05:50:30 AM »
Digging deeper into the materials I have been given-- it appears that this company's 401(k) is administered by Edelman Financial Services. I can't find any information on their 401(k) fees  or fund selection on the website, however if I were to go to them directly to invest it looks like their fees are very high. I am very discouraged. They appear to offer company 401(k) participants a lot of services I would have no interest in, and I suspect those services come with a cost.

I work in a very specialized field. I'm trying to locate to a region that doesn't have many jobs in my field. I've been looking for a job in this region since January and this is my first job offer. But a crappy 401(k) plan for someone with my priorities is a real killjoy.

kkbmustang

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Re: One year waiting period for 401(k)?
« Reply #8 on: September 27, 2015, 07:12:33 PM »
Negotiate your prior experience as seniority/time-in-grade/whatever. Get the waiting periods waived. They can do it.

I negotiated a 5% increase in starting pay with the State, after EVERYONE I asked told me it was impossible to negotiate.

A friend of mine retired from the State and went to work for the Feds. He negotiated all his State time as Fed seniority since he was working with Fed dollars in a .gov job.  So, instead of getting the new employee vacation accrual, he started out at the max vacation accrual, et cetera.

TomTX - An employee CANNOT negotiate getting waiting periods waived. The waiting period must be applied to all employees equally. One might be able to get prior service credit for purposes of years of service or vesting credit, but that requires a plan amendment and must be applied uniformly.

Here's the deal on the eligibility period: in order for a plan sponsor (employer) to get a tax deduction for contributions to retirement plans, the plan must meet minimum requirements. These are set forth in Internal Revenue Code section 401(a). IIRC, there are 31 subsections, each including a minimum requirement (and reference to more Code sections).

One of those requirements is that a plan must allow eligible employees to participate no later than the plan entry date following the date they reach age 21 and 1 year of service. This is a minimum requirement, of course, so an employer may choose to have a shorter eligibility period or younger minimum age requirement.

The plan entry date similarly must meet minimum requirements (essentially, no less frequent than January 1st and July 31st for calendar year plans, for example). Other options for the plan entry date can be immediately, monthly or quarterly.

Why would an employer choose the longer eligibility period? Because it costs money to administer a plan and a lot of administration fees are tied to the number of participants in the account. This means a reporting obligation, keeping track of addresses, finding lost participants, etc. If the company has a lot of employee turnover, this could be an issue. If you want to give a crappy employer the finger, leave your $5,000 account in the plan and make them pay for the privilege. (Less than certain amounts they can force a distribution or rollover to an IRA.) This is just one example of many.

FYI, I'm an ERISA attorney and this was my area of expertise for over 15 years. I'm not practicing currently due to a spine injury, but I mention it only to demonstrate that I know what I'm talking about.

jfer_rose

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Re: One year waiting period for 401(k)?
« Reply #9 on: September 28, 2015, 04:33:58 AM »


TomTX - An employee CANNOT negotiate getting waiting periods waived. The waiting period must be applied to all employees equally. One might be able to get prior service credit for purposes of years of service or vesting credit, but that requires a plan amendment and must be applied uniformly.
 

kkbmustang-- this is very helpful! Would it make any difference if a person had been previously employed by the same employer? That is, would the prior years of employment count toward the waiting period?

Ramza Beoulve

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Re: One year waiting period for 401(k)?
« Reply #10 on: September 28, 2015, 07:21:04 AM »
For my current job

401k - Eligible after 90 days
401k matching - 1,000 hours AND 1 year of service
401k vesting - immediate
« Last Edit: September 28, 2015, 07:39:57 AM by Ramza Beoulve »

Random Hangers

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Re: One year waiting period for 401(k)?
« Reply #11 on: September 28, 2015, 08:07:06 AM »
For my current job

401k - Eligible after 90 days
401k matching - 1,000 hours AND 1 year of service
401k vesting - immediate

Same for me (except for the 1,000 hours part). They match 50% of what you input up to 4% (so I look at it as basically 2%).

It sounds like you're in a pretty specialized field. If you aren't happy with the amount you'd be able to contribute pre-tax, maybe you can negotiate elsewhere? Higher wage to compensate? Good luck!

crazyworld

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Re: One year waiting period for 401(k)?
« Reply #12 on: September 28, 2015, 08:42:10 AM »


TomTX - An employee CANNOT negotiate getting waiting periods waived. The waiting period must be applied to all employees equally. One might be able to get prior service credit for purposes of years of service or vesting credit, but that requires a plan amendment and must be applied uniformly.
 

kkbmustang-- this is very helpful! Would it make any difference if a person had been previously employed by the same employer? That is, would the prior years of employment count toward the waiting period?

If employee had previously completed one year with the employer and is re-hired, that does count I believe.  At least for our plan, once eligible, always eligible - I am assuming that has to be standard.
We also have a one year waiting period.  The reason is we have a lot of hourly employees who turn over a lot.  The year is supposed to help with the management of this constant churn.  401K plans are required to be uniformly applied, which both helps & hurts, depending on each individual.  Though if you ask me, the biggest loophole is the % matching system.  Higher paid executives get more employer match, since their salary is higher.

solon

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Re: One year waiting period for 401(k)?
« Reply #13 on: September 28, 2015, 09:54:55 AM »
How about opening an IRA and sending your normal contributions there for the first year? Add a little extra to make up for the match you're not getting.

kkbmustang

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Re: One year waiting period for 401(k)?
« Reply #14 on: September 28, 2015, 11:35:25 AM »


TomTX - An employee CANNOT negotiate getting waiting periods waived. The waiting period must be applied to all employees equally. One might be able to get prior service credit for purposes of years of service or vesting credit, but that requires a plan amendment and must be applied uniformly.
 

kkbmustang-- this is very helpful! Would it make any difference if a person had been previously employed by the same employer? That is, would the prior years of employment count toward the waiting period?


Yes, it could. Here is the language directly from Code section 410(a)(5):

"(A) General rule
Except as otherwise provided in subparagraphs (B), (C), and (D), all years of service with the employer or employers maintaining the plan shall be taken into account in computing the period of service for purposes of paragraph (1).
(B) Employees under 2-year 100 percent vesting
In the case of any employee who has any 1-year break in service (as defined in section 411 (a)(6)(A)) under a plan to which the service requirements of clause (i) of paragraph (1)(B) apply, if such employee has not satisfied such requirements, service before such break shall not be required to be taken into account.
(C) 1-year break in service
In computing an employee’s period of service for purposes of paragraph (1) in the case of any participant who has any 1-year break in service (as defined in section 411 (a)(6)(A)), service before such break shall not be required to be taken into account under the plan until he has completed a year of service (as defined in paragraph (3)) after his return."

Link here: https://www.law.cornell.edu/uscode/text/26/410

Keep in mind that these are the minimum standards required by the Code. The plan document itself could be more generous. If you request a copy of the Summary Plan Description (SPD) from HR, it should summarize the provisions in the plan.


If employee had previously completed one year with the employer and is re-hired, that does count I believe.  At least for our plan, once eligible, always eligible - I am assuming that has to be standard.
We also have a one year waiting period.  The reason is we have a lot of hourly employees who turn over a lot.  The year is supposed to help with the management of this constant churn.  401K plans are required to be uniformly applied, which both helps & hurts, depending on each individual.  Though if you ask me, the biggest loophole is the % matching system.  Higher paid executives get more employer match, since their salary is higher.

CrazyWorld - There isn't a loophole in the percent matching system. And the statement that "higher paid executives get more employer match, since their salary is higher" is, quite frankly, absurd. Of course, 3% of $50,000 is going to be less than 3% of $150,000. It's called math, not a loophole. Even given this math, there are other limitations on the contributions highly paid employees can get.

Each plan must meet strict nondiscrimination requirements each year. Nondiscrimination being determined as between Highly Compensated Employees (HCE, defined term) and Non-Highly Compensated Employees (NHCE, also defined term). The only plans that do not have to perform the nondiscrimination testing are plans called "Safe Harbor" plans. These plans have to meet even more requirements, including a specific matching contribution formula and 100% immediate vesting for all participants.

Regardless of the type of plan, there are also these limits:
1. If the contributions of all of the non-highly compensated employees are a certain amount less than highly compensated employees, plans must remove contributions from the HCEs until these tests are satisfied. This applies to both elective deferrals (pre-tax deferrals) AND matching contributions.
2. Only a certain amount of compensation can be considered. So, if an HCE makes $500,000, the match or profit sharing contribution can only be calculated based on, for 2015, $265,000. This is in Code section 415 See here: http://www.irs.gov/uac/Newsroom/IRS-Announces-2015-Pension-Plan-Limitations-1 and also here: http://www.irs.gov/Retirement-Plans/401k-Plans-Deferrals-and-matching-when-compensation-exceeds-the-annual-limit
3. There are more, but I'm not going to list them all out.

Gone Fishing

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Re: One year waiting period for 401(k)?
« Reply #15 on: September 28, 2015, 11:48:05 AM »
Most plans come with a few strings.  At my company, you can participate, but do not get a match for the first year.  I was blindsided by this fact (would have taken the job anyway, though).  After the first year though, you get a 6% match, immediately vested.  When I took the job, I got a signing bonus to help cover a few things (relocation, retention agreement with previous employer, etc), but probably could have gotten a bit more if I had added the 1 year loss of the match to the list. 

TomTX

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Re: One year waiting period for 401(k)?
« Reply #16 on: September 28, 2015, 06:42:23 PM »



TomTX - An employee CANNOT negotiate getting waiting periods waived. The waiting period must be applied to all employees equally. One might be able to get prior service credit for purposes of years of service or vesting credit, but that requires a plan amendment and must be applied uniformly.
 

Then negotiate a bigger signing bonus/salary to make up for the chintzy plan they set up.

kkbmustang

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Re: One year waiting period for 401(k)?
« Reply #17 on: September 30, 2015, 03:59:49 PM »



TomTX - An employee CANNOT negotiate getting waiting periods waived. The waiting period must be applied to all employees equally. One might be able to get prior service credit for purposes of years of service or vesting credit, but that requires a plan amendment and must be applied uniformly.
 

Then negotiate a bigger signing bonus/salary to make up for the chintzy plan they set up.

Totally agree with you on this one.

Cognitive Miser

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Re: One year waiting period for 401(k)?
« Reply #18 on: October 12, 2015, 02:19:44 PM »
My company has a sort-of one year waiting period.  They have quarterly "entry dates".  You have to wait until the next entry date after one year after starting.  I started on July 11, just missing the July 1 entry date.  So I actually had to wait 14.5 months.  UGGGH.  This was OK with me at the time, as we were saving up money for a house downpayment.  I just diverted what I would have paid into a 401k into taxable savings.

That said, they have fantastic profit-sharing.  They generally pay out about 10% of salary every year, on top of the 1.5% match.  Vesting 100% takes six years, by the way.  And we get annual bonuses too.  And they pay our health insurance premiums 100% (employees only, not family members).  So I was willing to accept the crappy waiting period.

Bateaux

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Re: One year waiting period for 401(k)?
« Reply #19 on: October 13, 2015, 12:13:10 AM »
I had to wait one year.  That sucked.  I poured all extra money into my mortgage instead.  Max out your Roth IRA and open a regular Vanguard account.  Index funds have low taxes.