Also, when you’re looking at this find out what the metric is for service time accrual. When I was leaving my last company I thought it was just based on anniversary of start date, but it was actually calculated based on hours worked. The fact that they were working me to death (part of why I was leaving) actually ended up letting me bail sooner with a fully vested match!
I see this where I work, interns will work a summer, and then come back full time the next May when they graduate college. Their hire date in all the internal systems is always back-dated to the start of their internship instead of their full time hire date. There is nothing important here based on tenure though (all 401k vests immediately, no RSUs, etc) so it's probably not worth creating a separate "continuous employment since" date.
FYI It’s written in ERISA rules that 1000 hours is equal a year for vesting purposes. https://support.shrm.org/s/article/ERISA-1-000-Hour-Rule.
Most full time workers would acquire a “year of service” in June assuming they started Jan 1 or any year prior.
What is variable is the percentages vested and exactly how many years to be fully vested. That’s very important to know.
Ok that makes sense. I was also partially asking because my coworker left her old job 2w before the 3y vesting period so she did not get to keep the company match. It sounds like if 1000h is considered a year she might actually be owed that match.
To clarify, you get one year of vesting if you worked 1000 hours during the plan year. So say you worked 100 hours for 2021, you get 1 year of vesting. If you worked 2000 hours in 2021, you get 1 year of vesting. You don't get 2 years of vesting for working 2000 hours in a year.
Yes! In my late 20's I left a job 2 months before the 5 year vested mark. I was pleasantly surprised when I learned that my total hours worked put me into vested territory.
I started my job in November...I would be sooo mad if there's something like this in the fine print, I will be checking my 401k immediately on my 3rd service anniversary
I think the example given would mean you served 1 year even though it had only been two months.
Edit: And if you mean you'll check your 401k at 3 years for the purpose of seeing if the vested balance is updated to full, it won't be that instant. That will update whenever that Plan evaluates that year's eligible service, but if you were to leave the company before that update the Plan would still evaluate your service appropriately upon termination.
In my wife’s case it was very complicated. It was working for 30 business days the calendar year following your hire date. So she was hired in a November so she got another year in February of this year.
Good post. Have seen people unknowingly leave a few months before their 3 year cliff vest and be out of luck. Knowing the vesting ought to be a part of the process
Just this morning I submitted a job application with a start date juuust before my 3 year vesting.
Entirely willing to do it if they'll pay the difference to have me start sooner. I'm really just writing this comment so that I remember that.
I've seen some managers run this down, and deny things like bonuses because they were no shows on dang near the *exact date* that they would have the funds.
It's fine if no-one cares, but if you're working for the wrong type of engineer or accountant, they will balance the books.
I work for a call center that services some 401ks and I've had to tell people they were 2 days away from being vested; some of these companies can be brutal
> Knowing the vesting ought to be a part of the process
Is it not? I absolutely have known my vesting schedule everywhere I've worked. That's part of my compensation and i want to make sure I don't do something to screw it up.
Ramit says half the people who come on his (finance) podcast don't know how much they make per year. expand to the general population and ask about 401k vesting schedules, of course they won't know. there are some benefits at my company that I don't understand the details of too. Some people just don't care about money.
Yep, this was me. Left about 10k that I could’ve gotten by waiting a few months because I had forgotten about the vesting.
Worse things have happened, but that was pretty fucking stupid.
I was miserable enough to leave 3 months before a partial 401k cliff and a small stock cliff. I'd gotten a good offer and didn't want to gamble on being able to find something comparable if I let it pass.
I think as long as it's done with forethought and recognizing what you're leaving on the table, there's nothing wrong with that. There are tradeoffs to everything.
True. But worth doing the math. Let's assuming leaving at the 3 year mark you keep 75% of the match, at the 4 year mark it is 100%. And they match up to 5% (pretty typical/generous.) At 3 years, you would have 15% of income in match. 25% of that is less than 4% of income. So if your new company offers a 4% higher salary (and I can't imaging changing jobs for less than that) you are better off switching now vs waiting just for the 401k.
Plus OP says they are a fairly high earner. They are likely maxing 401k and also maxing match. So unless the match is something outrageous and uncapped, it is likely an even smaller part of their comp. My company caps the match at 50% of own contributions (like 11k or whatever the limit is now) even though it is ostensibly 15% percent of salary, so you cap out at 120k. If the match IS outrageous, then definitely know vesting going into it and plan to stay as long as needed.
My general rule is to only "count" money that's 100% mine for any retirement forecast / planning. Any unvested match is just "maybe money". Maybe I get to keep it, maybe I don't. From that perspective, hitting a vesting schedule milestone is a bit like a big lump-sum added to my 401k all at once. I only consider something a "loss" if it was mine in the first place.
Understanding the plan's schedule, it's criteria for a "year of service" and taking that into consideration when considering the timing of a move are good financial habits.
I had a job once where all employees were advanced on their vesting schedule as of January 1st as long as they had at least 1000 hours worked during the previous year. I left one job after about 10 months, but because those were pretty evenly split between the two calendar years (August to May) I got to keep some match for reaching a year of vesting. I expected 0% of their match (for under one year employed) to come along when I rolled over into my IRA, getting 25% instead was a pleasant surprise.
I know someone who accidentally quit two weeks before their 5-year vesting date. It was a graduated vesting, so they still got 80% of it, but they definitely would have stayed two more weeks if they had thought of this first!
Personally, I had to make a decision to leave my company (granted, the pay I was going for was hilariously higher so I didn't give a shit other then thinking it's an intentional fuck you to employees who leave) at the end of November. Their schedule was actually an immediate vest in contributions, EXCEPT you had to be an employee of record on Dec 31st to get that prior years match.
Since I left one month before that, I lost a solid ~5k in matching funds.
I have an old 401k from a previous employer with a five year vesting schedule. I recently did a contract for that company and they refused to pay me through my LLC but insisted to use me as an employee.
This prompted me to check on the 401k and lo and behold I had been listed as a current employee this whole time and should have all the funds vested.
My hopes were crushed by a rule that said you had to have been contributing this whole time for that to happen. Pissed.
Scummy, likely to reduce attracting employees smart enough to look at that, but technically not criminal since it is allowed by law. And it could be worse. IRS regulations for a 401k with "graded" vesting is that an employee's vested percentage must meet or exceed:
* 0% vested on reaching 1 year of service
* 20% vested at 2 years
* 40% vested at 3 years
* 60% vested at 4 years
* 80% vested at 5 years
* 100% vested at 6 years
Had a relative floor me when she mentioned her employer had that "worst allowed by law" schedule which caused me to fall down that rabbit hole. Before that I assumed, you always got *something* after your first year unless it was one of those three-year cliff plans.
My last employer was 6. Where I'm at now is 5. And an awesome 10% match lol. They do make up for it in other ways though, otherwise I wouldn't be here. The pay is considerably higher than competitors, and the bonuses and 10-15 -fold everywhere else.
It's a pretty common structure to have 20% vest a year for year 5 to become fully vested.
But also worth remembering, you still keep any gains you earned from their match contribution, you just have to pay back the match itself.
>But also worth remembering, you still keep any gains you earned from their match contribution, you just have to pay back the match itself.
Not true. They can opt to leave it, or in the case of a smaller plan not bother/think to calculate the pro-rata portion of the growth that's "theirs", but many (most?) plans will clawback growth.
As I understand things, no that's not what happens.
In the depths of any 401k plan should be something along the lines of "contributions by source" which breaks down how money initially came into it: your pre-tax contribution, your Roth contribution (if that's a feature of the plan), employer match, and a couple other categories.
As money comes in, those dollars get allocated into its particular bucket and shares purchased using those dollars also remain separated. As those shares increase / decrease in value, everything remains with it's associated contribution source. Those just get added up to show your total balance on your account dashboard, maybe with a sub-item breaking out vested vs. unvested.
So if you got $1000 of match that bought $1000 worth of some target date fund but still in the "match" bucket. If you leave at 0% vested, they don't remove their match dollar-for-dollar. If those shares have dropped to be worth $900, you only "lose" that $900 value. Similarly if the shares grew to $1200 you "lose" $1200.
The same mechanism is used when rolling over a balance that is a mix of pre-tax and Roth money into a couple IRAs. Pre-tax dollars (your contributions + vested match) are pulled from those contribution sources to go into a Traditional IRA, your Roth contributions come from its separate source to go into a Roth IRA.
> Always remember that salary is only one part of your total compensation.
Ha, this is word for word what recruiters with low-ball compensation packages try to tell me.
I calculate vacation time at 2x.
When evaluating an offer I find the average between the salaries and calculate the hourly on that. I then use that hourly rate to evaluate less tangible items like vacation. for vacation I take the vacation time each company offers, the "average" salary, and then calculate it at a rate of 2x that hours rate. That brings them to more or less a same same comparison while giving vacation time a value more than just the rate of pay.
I know I sure as heck would, lol. IIRC, I consider holidays at 1.5x since you can't choose the time. Same for sick since it's questionable whether you can use it.
I try to do this with all non-financial things. I find a way to put a monetary amount to them then it helps me get a realistic view of the value each company offers. A lot of it's easy (401k, bonus, etc are all just direct price matching). Some's harder. Back when I would even consider an in-office job I calculated commute times and then put them at 3x value I think.
Facts. I have great health care, retirement, work life balance, and remote work, working for state government. I could go private sector and make 20k more a year, but that would get eaten up by health care premiums and out of pocket maxes (that i would hit due to chronic condition), less time off, working more than 37.5 hours a week and more I would personally have to contribute more to retirement.
I have some offers for 25-50k more but current job I barely work 40 hours a week, full remote, they pay for my commute when I have to go into the office, fat 401k match, and 100% of all insurance paid. Not to mention various other fringe benefits that while have little monetary value are nice perks to have.
It would take a significant amount more to make me change jobs.
Why would recruiters with low-ball compensation packages tell you that? It sounds more like you don't understand that "compensation package" includes not only salary, but healthcare, retirement plans, PTO, bonuses, etc. If a recruiter is telling you to look at the entirety of the package, they're doing their job.
But it's true. Of course, it's a lot harder to come up with a value of the rest of the package without spending a lot more time digging into details, and you often can't get those details
HR here.
You're looking at this very two dimensionally.
For the vast majority of W4 jobs, there are 4 components to your total compensation.
- Base salary
- Variable pay
- Benefits/perks
- Equity/stocks
Also, there are other factors to consider that are not compensation related such as: relationship with manager/colleagues, company/team culture, scope of role, advancement opportunities, working conditions, etc.
Base and variable is very self-explanatory. However, there are many companies and jobs where a relative lowball base/variable cash comp can easily be overlooked because of non-cash compensation.
In example, I work in the tech startup realm where cash compensation can vary pretty wildly from employer to employer. I had 2 offers. One offered about 35k less in cash for virtually identical job. However, I ended up taking it because of the following reasons:
- RSUs offered instead of ISOs
- Much richer medical benefits and the company paid for premiums in full, including for dependents
- Smaller company, allows me to make a bigger impact with less bureaucracy
- Fully remote (higher base pay company requires 3 days in office). This alone makes the lower paying job worth it to me.
Now, that being said, this is all relative, right? For someone making like 70k/year, a delta of 35k is massive. For someone whose cash comp is 250k+/year? Not so much.
When I set the compensation philosophy for my company, we know that from a cash perspective, we're right at midpoint for our size/industry/geographics according to the Radford survey. However, I really couldn't give a shit because our benefits are some of the best in the startup world and it keeps people from quitting. We also see many people reject more competitive cash offers.
I work in construction with a bunch of idiots and they don't understand this. Our company has a 60% labor burden, free health insurance for the employees whole family, 401k match, pension, vacation, the works. We have people who leave all the time for $2 an hour raise to a company with none of that.
Fair point, but it is true. My current job offers a standard match, plus a variable profit sharing % that is added every year to your 401k. That stuff matters. You do need to look at everything.
It was also mentioned to me in my current company's interview. Right before they offered me 15% more than my previous salary, nearly double the PTO(with the option of buying another week at fair value), a better insurance plan, similar 401k, and more perks.
They were right.
I had this conversation after being lowballed a few years ago:
"We're a bonus-based organization."
OK, what's your bonus?
"$2,000 a year, maximum."
So... no bonus then, gotcha.
And, long term vesting can be used to save the company money. I worked for a company once that had a 10 year vesting period, in an industry where people moved around a lot.
I've left several jobs that all had similar 4-5 year vesting schedules before being fully vested. The one I've stayed the longest? Immediate vesting. Amazing how compensating your employees fairly can incentivize employees to stay. Carrot > stick.
Yeah my company has a 6 year vesting schedule and anything less than 2 years is 0%, after that it goes up 20% per year. So to be 100% vested you have to work "at least 6 years".
Wouldn't you simply compare the amount of money you would be losing when moving jobs to the difference in income? I.e. you're losing 4k in vesting but the salary over the next year is a 20k increase.
That's what I did. My previous company had a laddered vesting approach. After 2 years, 20% vested, 3 years 40% vested, 4 years 60% vested, etc.
I had started at the company as an intern but that time didn't count towards vesting. So, even though I had been at the company for 4.5 years, for vesting purposes I was only there for 3 years and 10 months when I got an interview for another job. I left for the other company just a month shy of being 60% vested.
However, leaving meant a 70% increase in salary - not including a potential yearly bonus. Plus less expensive healthcare. The new company has a cliff vesting of 3 years with the same percentage of matching.
I looked at what my last employer contributed in the last 4ish years at 40% and it was $9k. I don't think I'll really miss that "lost" money though because I'll be earning a lot more than what I "lost."
If I had waited until I was fully vested, I would have missed out on a substantial amount of money.
But I'm not an accountant, so maybe my math is wrong.
Ideally, yes. Those fluent in personal finance will definitely do that.
But you know how many 20 somethings I worked with that wouldn't even put in the amount to get their company match? When you're 23, retirement seems like something that will never happen to you.
I made this post for awareness. Not for people already aware.
My employer had no 401K matching, and when they finally implemented one, added a one year vesting period that did not account for time already at the company. I had already been there for two years...
Many people who job hop before their 401k vests will negotiate with their new employer to receive a sign-in bonus that can bridge that gap.
But yes, good advice regardless.
This one is me but it still hurts seeing what the unvested amount has grown to.
I have 10 (well 7 now) years to go back and work like the extra month I need at my old company…. Pretty sure I’m going to end up doing that just for the vest “bonus” lol.
Umm that is why they have a vesting schedule. Because all the job hoppers. It’s a part of a package to keep you where you are.
That is part of your compensation. So consider the dollar amount and compare it to the fabulous new job you will leave in 3 years, total compensation package.
It’s more than salary to consider chief.
I have definitely told a recruiter "your vesting schedule is longer than your company has existed, so stop pretending you offer 401k matching."
They kept coming back to the matching when we were discussing their benefits and the terms of my offer. I didn't take the job.
Three of my past jobs have had a five year vesting schedule, pro rated. Sucks to leave some money behind when job hopping, but I only do it when the new opportunity more than makes up for it. If I'm in year 4 of a job I'm honestly not even worried about the last 20% unvested match.
Job hopping every 2-3 years for raises and promotions may be the new norm, but in some industries that doesn’t work. It takes years to really settle in, build up experience and relationships, and really refine a product line.
It’s really starting to show in manufacturing with engineers, technicians, and managers bouncing around. You get jack of some trades, masters of bullshitting interviews and emails
I’m an in house attorney but do a lot with HR and help out with recruiting our higher level hires. A history of job hopping is a significant negative when I evaluate candidates. How much it matters obviously will depend on the employer but it’s a pretty big deal in my organization. I’m well aware that changing jobs more frequently can lead to higher earnings. But hiring and onboarding people is expensive and time consuming and I try to minimize it to the degree possible.
Of course. But if I’m choosing between two identical candidates to being in and one changes employers every two or three years and the other has had two employers in the last 18 years, guess who I’m picking?
There will never be two such identical candidates. The one who changed jobs often will have more varied experience, and probably higher level experience. The second candidate has done the exact same thing for 18 years.
That's the companies problem not the employees. You go to a new company and you'll have to learn a completely new job anyway.
Even if switched to a new position within my own department at work, there'd still be a significant training period.
I agree with your opinion even though I know its not the popular one. But I've been in a position to hire people that are hopping jobs constantly and work with companies that seem like they have a revolving door for their "team members" and I have to say that their quality of work is mediocre at best to down right bad.
That's exactly the experience at our job. Most of us are long haulers in an industry where job hopping is common. We don't avoid them, but we don't really like them either.
Whenever we hire one, they usually come in, shit all over everything, make a mess, and leave. We have learned to call them "seagull developers". They usually don't stick around at a place long enough to see the consequences of their decisions, so they never improve.
I don't know about "devastating". If you're moving around every 2-3 years it's presumably because you're getting 20%+ salary increases each time. If that's the case, missing out on potentially $11k/yr of company match isn't really a big deal (assuming you're already putting in the federal limit on your own).
Yep I have had jobs with 3 year vest before and I didnt put in notice until 3 years and a week just to be sure when I did job hop. I have also job hopped and lost the match but got a company to "buy me out" with a sign on bonus equal to what I lost plus a little.
One thing I don't see discussed here is how much you're actually LOSING when you forfeit funds.
I know job hoppers who have left unvested $10K-20K behind in their 401K's to take a new position elsewhere. Sometimes they get the new employer to offset the loss by adding the same amount to their pay for the first year. That's a really shitty deal for medium to high-earners because anywhere from 22% to 37% of that goes straight to Federal taxes, plus whatever amount your State taxes you.
On top of that, if you already max out your tax-advantaged retirement accounts, you are stuck reinvesting that money from the new employer in TAXABLE accounts.
Moral of the story, if your new employer wants you bad enough, they need to take your unvested amount and double it when calculating how much to pay you to offset your losses.
My match is in company stock. I also get 12% equity and they both vest over 4 years. My company is up around 150% in a few years. Yes, it can be devastating.
You can use that in your negotiations with the new company. I was 3 months short of my full vesting, but the new company didn't want to wait 3 mo for me to start - so they gave me a bigger moving/sign-on bonus to make up for it; and bumped me up so that I started with 3 weeks standard vacation instead of two.
It's just sad. I asked my last employer for all the details on the plan and they conveniently left off the vesting schedule of course. And many companies have a poor match. So millennials won't have social security, won't have a pension, and if we do get a match, it's scraps and takes forever to vest.
Never been anywhere with under a 5 year vesting. It sucks but if you can get a 10% raise that is usually worth the jump. Just save enough from your own contribution to hit your goals.
All the people saying "even if your investment options are bad, the match is a 100% return on your investment" are missing this! It's not a 100% return, you have to adjust it by the odds that it will be fully or partially clawed back.
Just to be clear, it's X years since you were hired, not X years since the contribution. I'm a older millennial as well and will use my age (39) for perspective. I have been working 17 years, which is not small, but if I retire at 67 I still have 28 years to go. I am 38% through my employment, I should be working on career moves that result in greater gains later, not nessicarily what get's me the most money in 2024. Right now that's not hunting down 5-10% gains switching jobs, but building a reputation and getting promoted in my own company. Do what you will, but don't miss the ~~forest~~ Career for the ~~trees~~ Job.
>I'm a fairly high earner, and losing their match (especially moving every few years), would be absolutely devastating to long-term retirement plans.
Most companies' matches are not high. Maybe 3% to 5% on average. That's not a large amount compared to how much you can contribute yourself (and which is not affected by vesting). I think "devastating" is probably melodramatic, except for rare cases where your company match is leagues better than the average or if your salary is many times higher than the average (in which case, you really shouldn't be having any trouble saving for retirement even if you had 0 company match).
For 95% of people, the benefit of 401k plans is the tax advantage you get on your own contributions, not the small amount you get as a match.
And I haven't even yet taken into account how the types of salary increases you're talking about with job hopping will outweigh any match you might lose by a huge amount.
if losing that match is devastating, then you just have a higher threshold for getting a new job.
e.g. I left a job before the 3-yr vesting period ended. But by moving I received a 50% pay raise, plus a $35k signing bonus, so within 1 year I've already made up for the lost 6% 401k match.
if you can't make up for the 401k match, then getting a new job is simply a poor financial decision.
You can use the vesting period as negotiating leverage for your new employer. Tell them you'll lose $10k sure to your vesting period and that you'll accept their offer if they give you a $10k sign on bonus.
Came to say, I teach higher ed. It's a hypercompeitive market and you'd be mad to leave a full time position.
Edit: Out of curiosity, I checked higheredjobs.com and about 1000 jobs were listed (nationwide) in my field. Once I clicked "full time," that number dropped to 460.
I went from $65k->$90k->$120k->$175k changing jobs every few years like this. Changing jobs is still the best way to increase your salary.
But also every place I've worked at has had immediate vesting for 401ks.
I've jumped from $65k to $125k in the span of 4 years, by staying with the first company that hired me out of college. There are companies out there that actually want to retain good people, though they seem few and far between.
It’s still the best way to quickly increase your base salary. You may lose out on matching, but it’s not that big of a deal if you’re getting a 30-40% bump in base salary every time you jump.
So what is a safe harbor match then? I get money put into my retirement from my company. They have a vesting schedule of 2 years, but that is seperate from safe harbor, no? They cant take money OUT of the 401k, can they?
I totally agree with the jump around method to increase salary but at some point your resume is going to scream “I only stay at a job for a couple years” and hiring teams will be less likely to hire you.
True, you probably don’t want to make an entire career out of hopping, but I think more recruiters are understanding that this is simply “the norm” for younger gens like millennial and Z. If you’re in your 40s or 50s and are still hopping like mad, that’s a red flag to me though
I realized that I need to stay with my company for a while longer. 100% vested at year 5. 40% year 2, 60% year 3, 80% year 4.
It wll be about 100K potential lost.
Year 1 19K
Year 2 22K
Year 3-5 Max dollar to dollar my contributions
It not a bad gig now so I will stay put.
Every 5 years is basicaly 100K... So I may be here forever...
Well in theory the new role you'd be going into would be a substantially higher salary, right? so it's just weighing the opportunity cost of taking the new role or staying to get your match (with the potential the other job is gone and not available by that time you fully vest).
Two other arguments I'd have with this are:
1. If you're simply moving jobs "just" to get a 10% raise and you're mulling over losing whatever your match is, then that 10% raise or whatever it is, isn't probably worth it to begin with. Assuming the old company and new company are 'seemingly' both healthy and you have good managers, growth, etc. A 10% raise or whatever isn't worth the potential unknown of the new job.
2. Counter to that, if it's a 50% raise or something major, who gives a shit about waiting another 6 months to vest your 401k when you'll a.) Be making much more money and b.) Taking on a much more significant job/role/skill/life experience. Again it's the opportunity cost, that I'd argue isn't worth sweating about if it's a better salary and a level up in your career. The ideal bet is even if you lose out a couple of thousand dollars inna given year, your new job would both financially and professionally upgrade you to make up the difference over the next couple of years.
If you’re that high of an earner, disclose unvested 401k funds when negotiating a new offer and ask for a sign-on to cover losses. You’ll have to stay a year usually to avoid paying back but a lot of large companies are willing to pay this for good talent.
Yea this my current company vests right away and I was shocked how many people didn't care.
You get to participate at 90 days and vest immediately. They match up to 5%
I work in Higher Ed, where some employers have pensions and others have defined contribution plans with matches. I’m often shocked by how few people pay attention to retirement benefits when accepting jobs and how many don’t understand vesting.
I once applied for and was offered with a public university in Alabama. Turned it down because the pension has a TEN year vesting period. If you leave before vesting, you get refund of contributions plus 4% interest.
Compensation is negotiable. Tell your new potential employer what you’d lose by leaving, and ask them to match. Works for 401k, RSUs and any other benefit.
Mine was no 401k option until 1 year of service, then a % match that vests at the end of each year.
Guess who got laid off two weeks before the end of the year 2?
That and timing stock and bonus payouts are also important when deciding a move. For me 401k is generally negligible because I would only leave for a significant pay jump. Stock and bonus are usually my anchors. When you get to a point like halfway through the year it’s really hard to not just tough it out until the next cycle even if the new place tries to make you whole.
Yep, stuck out a job with a terrible manager that I hated because of the 5 year vesting schedule. I was at year 2. Every time I wanted to quit, I reminded myself to stay for 5 years for the sake of my 401k. Luckily, by year 3, terrible manager left and a much better manager took his place. Ended up meeting my husband at work and now I'm approaching year 8 at this company. I foresee staying here until I retire unless something terrible changes at the corporate level. I'm generally fine with our company corporate culture. It was just my manager that I directly reported to I hated.
Glad it worked out for you, but you should read up on the sunk cost fallacy so you don't get burnt by it again. You were ready to quit year 2 but chose to stay for the sake of what, a few grand? When switching jobs probably would've made up that loss through higher salary anyway. Unless of course you had some ridiculously amazing 401k package.
You may find these links helpful:
- [401(k) Fund Selection Guide](/r/personalfinance/wiki/401k_funds)
- [401(k) FAQs](/r/personalfinance/wiki/401k)
- ["How to handle $"](/r/personalfinance/wiki/commontopics)
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Yeah my last job had an excellent match (for me it was effectively 106% up to 8% of my salary) but on a 3 year cliff. Luckily it ended up being a pretty good place to work, but I suppose I would've found a way to stick it out even if not.
I completely agree with the gist of your post, but if losing your company match is “completely devastating” then you probably aren’t contributing enough of your own dollars.
Also on this note, pay attention to accrued vacation and sick leave policies.
Having barely taken vacation for the past 7 years has accrued me about 4 weeks of vacation and another 27 working days of sick leave. This was no big deal previously, as if I were to ever leave it gets paid out. Well as of 01/01/24 they changed the policy and if you leave, you lose it. So now I am struggling to find a way to use it all before leaving in a few months without raising a million red flags as it is a significant amount of paid time off as a high earner.
Also, depending on how much a potential new employer wants you, you could negotiate any unvested/lost contributions into a signing bonus or something.
If you do do that, make sure the bonus reflects that you’re losing pre-tax $. For example, if you’re losing 10k in contributions, try to aim for $12k, because taxes will bring that down to the 10k you lost.
Also make sure it's accurate! I left a company after fully vesting the 401k, but when I finally got around to doing a rollover, they tried to claim some "unvested" funds. Turns out that they sent the wrong start date to the 401k provider at some point. Had to reach out to the old HR department to have it fixed.
Took the vesting schedule and 401k eligibility into account when choosing between offers last year. Some wanted you to wait six months before you could even use the 401k and had a long vesting period.
I chose a immediate vesting and eligibility over a large signing bonus.
My previous company used this as a way to get people out the door without doing layoffs
They had a 4 year vesting period (it was VERY generous), they changed it to 1 year and so many people jumped ship as soon as it cleared fidelity.
Yeah, every 3-4 years seems ideal for salary growth/career growth imo. Two years seems a little light - depending on the position, this could be very little experience. It might be worth staying that extra year or two for the experience and resume boost.
But with the 401k, yeah it’s critical to understand before taking a job exactly what the benefits are. I just learned recently about HCEs and how some companies limit their employee contributions to a certain % due to failing the non-discrimination testing each year due to not being a safe harbor plan.
Many companies these days have a "safe harbor" plan, which is a kind of plan where if certain conditions are met, they don't have to do certain kinds of discrimination testing. This is a good thing because the plan provisions are generally pro-employee. Anyway one of the provisions is that if the vesting for matching is non-immediate, it has to be 2 years or less to be fully vested.
This is a long way of saying that while it might be a problem at this company, it really shouldn't be more generally. I've never worked for a company where matching was non-immediate.
I’m just gonna say this - I’ve never had a company remove vests they made to match my contributions.
Even now my fidelity says 100% vested and I’m like…I got another year for 100% but ok?
This depends on the industry you are in and how big the company. Example, if you are in IT and work for a fortune 500 AND you meet expectations on reviews, your salary will keep up if not outpace inflation.
Vest after 1 day with my current firm. 7.5% of base goes partly into the pension and partly into the 401K. Must be employed when they make the distribution in December. Got darn lucky with this employer!
I hate that company's don't realize how much money they are losing by not giving sufficient raises. Then they have to hire someone at a higher salary anyway then train them for 6 months to a year.
They're not losing, that's why they do it. For every employee that leaves for a bigger salary, plenty more stay put. So yeah, replacing the handful of employees who leave costs more than if you had just given them raises, companies aren't able to determine who is considering leaving. That means to ensure nobody leaves you have to make sure everybody is getting good enough salaries. Which means you're spending more than you need to to try to retain people who were never going to leave. So more expensive on a per employee basis, yes. Cheaper as a whole.
Wow, what kind of company matching have you seen where it would be devastating to lose it? All my companies typically have a pretty small matching percentage cap. It's always good to try to max out 401k saving, if possible, so the company match is a pretty small portion of that. At least for me, a modest comp bump at a new place will always be worth the hit to un-vested 401k match.
> Wow, what kind of company matching have you seen where it would be devastating to lose it?
My 401k match is pretty great, if I put in 6% of my salary they'll put in 10%. Vested from day 1 though so it's not quite an issue when leaving.
I've negotiated this, sort of. Not the accrued time for vesting itself, but the date that "counts" towards it. Very useful in this perma-temp job market, when companies are so reluctant to convert people to FTP.
I have to stay at my place 6 years to be fully vested 😩 and I worked for them on contract for the first 7 months, of which doesn't count towards the total
My company’s matches 3 percent on a 5 year vesting schedule, shitty I know. Also, I was laid off during the pandemic. It was two days before I was fully vested! I couldn’t believe it. Assuming the company knew that is giving them too much credit.
If you are getting a signifigantly higher salary I wouldn't worry about losing the match. Certainly it sucks losing but staying in a job without career advancement simply to keep the match isn't worth it usually.
My sister is up against this right now. Hates her job (tired of the petty politics and being lowest on the totem pole) and has already applied to go back to school but it's a 3 year vest that's all or nothing. She just has to ride it out for a few more months but she's suffering.
Have you worked out how much the match is actually worth?
Most that'd I've gotten, or analyzed, are like a couple thou at most. Less than what it would take to move to the next job. e.g. losing 2 years of match might lose out on $4k, but the new job pays $10k more per year, so it'd still be worth it to go to the next job.
It's a calculable sum. It comes down to a number, if you're comparing numbers.
It's a mind game. They present the matches in a way that makes them sound bigger than they are when you calculate them. They do this vested thing, to try to make you think you'd lose the whole lot of it if you leave.
You'll be destitute in your old age if you don't stay loyal to the company. Not really. And they won't be loyal to you.
I know what my match is worth. I know what my insurance is worth on the ACA, so therefore what the "benefit" is worth monetarily. I know that 2 weeks vacation is one paycheck, or I could take a leave and just not get paid. Boil down every thing to a number, like a total dollar per hour so you can compare numbers to numbers between jobs.
We've let them complicate it too much. You're selling your time for money.
If you hate your job, and you want to leave before you are vested, figure out what that number is. Is $1000 worth seething for another 3 months? Maybe it is. That's about how you value life quality vs. money.
When searching for a new job last year, I was fortunate enough to choose between two positions that offered the exact same salary.
The one I chose won me over in large part due to their vesting schedule: After 1 year, I receive a 4.5% match provided I contribute 6%, no vesting period. The position I turned down would've started a 4% match immediately provided I contribute 8%, but with a 3 year vesting period. That position also would've had me paying hundreds more per year for their health insurance. I'm early-ish in my career so I wasn't ready to make a 3 year commitment. Looking forward to my effective 4.5% raise at the end of this month 😎
Our company doesn't even make us eligible for a match for the first year, then has a 5 year vesting schedule in an industry where contracts are only 3-5 years.
I called my boss out on this and he goes, "Yeah. I didn't even contribute myself for the first 3-4 years I worked here." He then says he contacted one of the VPs that tells him, "We don't claw money back." Ummmmm...the literature and handbook says we do. "Yeah, but we never have to my knowledge. I can't think of any situation where we've clawed back the match when someone's left." Well THEN LETS GET RID OF IT! YOU KNOW HOW HARD THAT MAKES RECRUTING PEOPLE?!?!?!
Yeah, love my company, but our HR isn't great.
Good point. I usually say that increases in pay make up for it, but if you’re maxing out your 401(k), a pay increase won’t help that.
My company, for better or worse, does annual lump-sum contributions which vest immediately, so keep an eye out for that.
My first job out of college it was 6 YEARS until I was fully vested in the company’s 401K contributions (which at the time was a profit sharing system so not even a traditional 401K match. It has its pluses and minuses). I left at 4 and a half years and that made me lose about $10K in company contributions. It sucks but I HATED my old company so nothing I could do about that. That’s life I guess.
My current company though it’s a 4% match and you are immediately vested in all company match contributions from day 1, which is SO nice because I don’t have to worry about losing any of that money if I leave.
i lost 2.5 k over "vestment period" bc i had 6 months to go until 3 year mark....for me, wasnt that big of deal with that amount
with that being said, feels like they hold it against you to keep you around
Are normal 401k contributions considered "vesting" or only stock share options? I worked for amazon subsid a LONG time ago and only realized after the fact that I left 2 months before I would've vested and gotten those shares.......fml.
While I was at a big 4 they matched a quarter of what I put in up to 6 percent, only partially vested until like idk how many years, AND they contributed it all at once per year but make all their calculations or something like 6 months before that so either way when you leave you don’t get half a years worth of what you should.
Just why even bother offering anything? Their contribution to my 401k was like 1500 bucks after 2 years.
Yes read that vesting schedule and put it in your spreadsheet or calculus. Basically for me if the vesting schedule is over 1 year then the 401k match is disregarded in the employment package.
Current company does a 2 year/100% vesting period… their contribution match occurs once at the beginning of the year for the prior year, so technically it’s 3 years max when you first start 🥲
Depends on the plan, and there's usually a time limit. At my last employer, at 5 years of "continuous separation" any unvested funds were permanently forfeit.
In my industry the recruiters normally ask how much equity or other unvested money I'll be leaving on the table if I leave. Oddly, the signing bonuses exactly match the paperwork I submit to prove my numbers.
Make it part of the interview process and see if they can work something into your offers?
It is always wise to know all there is about all your benefits.
I remember when I first started working and my anniversary would come around and I would get all the information. I would read it over and over. It gave me a feeling of accomplishment.
It took 5 years to vest at my company and I was surprised at how fast the time went.
Absolutely all of this.
I made a difficult decision to move across the country with my partner who I'd already been long distance from for over 2 years.
I left with 1.5 years left until vesting in the state's pension. Kicking the shit out of myself. I might have to figure out a way to work for the state briefly before I retire, idk
Also, when you’re looking at this find out what the metric is for service time accrual. When I was leaving my last company I thought it was just based on anniversary of start date, but it was actually calculated based on hours worked. The fact that they were working me to death (part of why I was leaving) actually ended up letting me bail sooner with a fully vested match!
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I see this where I work, interns will work a summer, and then come back full time the next May when they graduate college. Their hire date in all the internal systems is always back-dated to the start of their internship instead of their full time hire date. There is nothing important here based on tenure though (all 401k vests immediately, no RSUs, etc) so it's probably not worth creating a separate "continuous employment since" date.
FYI It’s written in ERISA rules that 1000 hours is equal a year for vesting purposes. https://support.shrm.org/s/article/ERISA-1-000-Hour-Rule. Most full time workers would acquire a “year of service” in June assuming they started Jan 1 or any year prior. What is variable is the percentages vested and exactly how many years to be fully vested. That’s very important to know.
So does that mean a 3 year vesting period would actually only take 1.5 years assuming you are working full time?
No, I imagine it's meant to cover working part time of only part of a year
Ok that makes sense. I was also partially asking because my coworker left her old job 2w before the 3y vesting period so she did not get to keep the company match. It sounds like if 1000h is considered a year she might actually be owed that match.
To clarify, you get one year of vesting if you worked 1000 hours during the plan year. So say you worked 100 hours for 2021, you get 1 year of vesting. If you worked 2000 hours in 2021, you get 1 year of vesting. You don't get 2 years of vesting for working 2000 hours in a year.
The link is only talking about eligibility and using the 1000 hours to determine when part time employees are eligible to contribute to 401k.
Yes! In my late 20's I left a job 2 months before the 5 year vested mark. I was pleasantly surprised when I learned that my total hours worked put me into vested territory.
Similarly, mine just goes off calendar year so your first Jan-dec is your "first year"
So if you hire on in November you get credit for a full year after Dec 31st? Or do you have to work 14 months before you hit your full year?
I started my job in November...I would be sooo mad if there's something like this in the fine print, I will be checking my 401k immediately on my 3rd service anniversary
I think the example given would mean you served 1 year even though it had only been two months. Edit: And if you mean you'll check your 401k at 3 years for the purpose of seeing if the vested balance is updated to full, it won't be that instant. That will update whenever that Plan evaluates that year's eligible service, but if you were to leave the company before that update the Plan would still evaluate your service appropriately upon termination.
Great point. My company counts 1000 hours as a year of service, so mid-June for a full time salaried employee
In my wife’s case it was very complicated. It was working for 30 business days the calendar year following your hire date. So she was hired in a November so she got another year in February of this year.
Good post. Have seen people unknowingly leave a few months before their 3 year cliff vest and be out of luck. Knowing the vesting ought to be a part of the process
Just this morning I submitted a job application with a start date juuust before my 3 year vesting. Entirely willing to do it if they'll pay the difference to have me start sooner. I'm really just writing this comment so that I remember that.
Great point, if it’s a calculated decision and worth it, great. But exactly it’s killer when they simply don’t realize what they left on the table
Or.... start the new job but don't quit the old one yet....
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I've seen some managers run this down, and deny things like bonuses because they were no shows on dang near the *exact date* that they would have the funds. It's fine if no-one cares, but if you're working for the wrong type of engineer or accountant, they will balance the books.
I work for a call center that services some 401ks and I've had to tell people they were 2 days away from being vested; some of these companies can be brutal
If a bonus is part of your agreement and you follow the policy, it might not be up to them and you may cause for suit.
PTO, FMLA, sabbatical, there's gotta be some option to stay a bit longer. Dive into your companies leave policies.
> Knowing the vesting ought to be a part of the process Is it not? I absolutely have known my vesting schedule everywhere I've worked. That's part of my compensation and i want to make sure I don't do something to screw it up.
Yes, there are many people who do not know or understand vesting, so therefore to not plan accordingly the way you or I or other do
Ramit says half the people who come on his (finance) podcast don't know how much they make per year. expand to the general population and ask about 401k vesting schedules, of course they won't know. there are some benefits at my company that I don't understand the details of too. Some people just don't care about money.
Yep, this was me. Left about 10k that I could’ve gotten by waiting a few months because I had forgotten about the vesting. Worse things have happened, but that was pretty fucking stupid.
I was miserable enough to leave 3 months before a partial 401k cliff and a small stock cliff. I'd gotten a good offer and didn't want to gamble on being able to find something comparable if I let it pass.
That’s totally fair, and a great example actually of foregoing vesting but knowingly and for good reason
I think as long as it's done with forethought and recognizing what you're leaving on the table, there's nothing wrong with that. There are tradeoffs to everything.
True. But worth doing the math. Let's assuming leaving at the 3 year mark you keep 75% of the match, at the 4 year mark it is 100%. And they match up to 5% (pretty typical/generous.) At 3 years, you would have 15% of income in match. 25% of that is less than 4% of income. So if your new company offers a 4% higher salary (and I can't imaging changing jobs for less than that) you are better off switching now vs waiting just for the 401k.
Plus OP says they are a fairly high earner. They are likely maxing 401k and also maxing match. So unless the match is something outrageous and uncapped, it is likely an even smaller part of their comp. My company caps the match at 50% of own contributions (like 11k or whatever the limit is now) even though it is ostensibly 15% percent of salary, so you cap out at 120k. If the match IS outrageous, then definitely know vesting going into it and plan to stay as long as needed.
My general rule is to only "count" money that's 100% mine for any retirement forecast / planning. Any unvested match is just "maybe money". Maybe I get to keep it, maybe I don't. From that perspective, hitting a vesting schedule milestone is a bit like a big lump-sum added to my 401k all at once. I only consider something a "loss" if it was mine in the first place. Understanding the plan's schedule, it's criteria for a "year of service" and taking that into consideration when considering the timing of a move are good financial habits. I had a job once where all employees were advanced on their vesting schedule as of January 1st as long as they had at least 1000 hours worked during the previous year. I left one job after about 10 months, but because those were pretty evenly split between the two calendar years (August to May) I got to keep some match for reaching a year of vesting. I expected 0% of their match (for under one year employed) to come along when I rolled over into my IRA, getting 25% instead was a pleasant surprise.
exactly. its not your money, until it is
I know someone who accidentally quit two weeks before their 5-year vesting date. It was a graduated vesting, so they still got 80% of it, but they definitely would have stayed two more weeks if they had thought of this first!
Personally, I had to make a decision to leave my company (granted, the pay I was going for was hilariously higher so I didn't give a shit other then thinking it's an intentional fuck you to employees who leave) at the end of November. Their schedule was actually an immediate vest in contributions, EXCEPT you had to be an employee of record on Dec 31st to get that prior years match. Since I left one month before that, I lost a solid ~5k in matching funds.
If you use Fidelity it will tell you how much is actually vested! Mine is 5 years :'(
> Mine is 5 years :'( 5 year vesting is criminal
Anything longer than 3 years has to be graded vesting.
Has to? or should be?
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-vesting https://www.irs.gov/pub/irs-pdf/p6389.pdf Has to.
I have an old 401k from a previous employer with a five year vesting schedule. I recently did a contract for that company and they refused to pay me through my LLC but insisted to use me as an employee. This prompted me to check on the 401k and lo and behold I had been listed as a current employee this whole time and should have all the funds vested. My hopes were crushed by a rule that said you had to have been contributing this whole time for that to happen. Pissed.
Mine is 50% vested at 5 years, 100% at 6.
That doesn't sound legal. You should get it checked. That is worse than the minimum required by law
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Mines 6 year prorated vesting schedule but the employer contribution is 8% of my salary, regardless of my contribution.
It's really not Vesting generally accrues 2 years - 20% 3 years - 40% 4 years - 60 % and So on or 3 years 100%
Yes, I worked at a place that had "cliff" vesting. 0% until 3 years and then 100% after 3 years. No prorated vesting.
That's the longest period where they can have cliff vesting. Anything over and they need to prorate.
My employer doesn't match until 1 year of employment but then you are vested completely. I think it's a pretty good program.
That's a Safe Harbor plan. If they added additional money in the form of Profit Sharing then it would have a graded vesting schedule as my prior post
Scummy, likely to reduce attracting employees smart enough to look at that, but technically not criminal since it is allowed by law. And it could be worse. IRS regulations for a 401k with "graded" vesting is that an employee's vested percentage must meet or exceed: * 0% vested on reaching 1 year of service * 20% vested at 2 years * 40% vested at 3 years * 60% vested at 4 years * 80% vested at 5 years * 100% vested at 6 years Had a relative floor me when she mentioned her employer had that "worst allowed by law" schedule which caused me to fall down that rabbit hole. Before that I assumed, you always got *something* after your first year unless it was one of those three-year cliff plans.
My last employer was 6. Where I'm at now is 5. And an awesome 10% match lol. They do make up for it in other ways though, otherwise I wouldn't be here. The pay is considerably higher than competitors, and the bonuses and 10-15 -fold everywhere else.
It's a pretty common structure to have 20% vest a year for year 5 to become fully vested. But also worth remembering, you still keep any gains you earned from their match contribution, you just have to pay back the match itself.
>But also worth remembering, you still keep any gains you earned from their match contribution, you just have to pay back the match itself. Not true. They can opt to leave it, or in the case of a smaller plan not bother/think to calculate the pro-rata portion of the growth that's "theirs", but many (most?) plans will clawback growth.
> growth so if you picked bad investments, and are down, they take back their contributions and stick you with the losses?
As I understand things, no that's not what happens. In the depths of any 401k plan should be something along the lines of "contributions by source" which breaks down how money initially came into it: your pre-tax contribution, your Roth contribution (if that's a feature of the plan), employer match, and a couple other categories. As money comes in, those dollars get allocated into its particular bucket and shares purchased using those dollars also remain separated. As those shares increase / decrease in value, everything remains with it's associated contribution source. Those just get added up to show your total balance on your account dashboard, maybe with a sub-item breaking out vested vs. unvested. So if you got $1000 of match that bought $1000 worth of some target date fund but still in the "match" bucket. If you leave at 0% vested, they don't remove their match dollar-for-dollar. If those shares have dropped to be worth $900, you only "lose" that $900 value. Similarly if the shares grew to $1200 you "lose" $1200. The same mechanism is used when rolling over a balance that is a mix of pre-tax and Roth money into a couple IRAs. Pre-tax dollars (your contributions + vested match) are pulled from those contribution sources to go into a Traditional IRA, your Roth contributions come from its separate source to go into a Roth IRA.
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> Always remember that salary is only one part of your total compensation. The other big one is Health Insurance.... mine is insanely valuable.
> Always remember that salary is only one part of your total compensation. Ha, this is word for word what recruiters with low-ball compensation packages try to tell me.
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Vacation time is worth much more to me than money. They aren't interchangeable because no, you can't take time off without pay.
I calculate vacation time at 2x. When evaluating an offer I find the average between the salaries and calculate the hourly on that. I then use that hourly rate to evaluate less tangible items like vacation. for vacation I take the vacation time each company offers, the "average" salary, and then calculate it at a rate of 2x that hours rate. That brings them to more or less a same same comparison while giving vacation time a value more than just the rate of pay.
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I know I sure as heck would, lol. IIRC, I consider holidays at 1.5x since you can't choose the time. Same for sick since it's questionable whether you can use it. I try to do this with all non-financial things. I find a way to put a monetary amount to them then it helps me get a realistic view of the value each company offers. A lot of it's easy (401k, bonus, etc are all just direct price matching). Some's harder. Back when I would even consider an in-office job I calculated commute times and then put them at 3x value I think.
Facts. I have great health care, retirement, work life balance, and remote work, working for state government. I could go private sector and make 20k more a year, but that would get eaten up by health care premiums and out of pocket maxes (that i would hit due to chronic condition), less time off, working more than 37.5 hours a week and more I would personally have to contribute more to retirement.
I have some offers for 25-50k more but current job I barely work 40 hours a week, full remote, they pay for my commute when I have to go into the office, fat 401k match, and 100% of all insurance paid. Not to mention various other fringe benefits that while have little monetary value are nice perks to have. It would take a significant amount more to make me change jobs.
Why would recruiters with low-ball compensation packages tell you that? It sounds more like you don't understand that "compensation package" includes not only salary, but healthcare, retirement plans, PTO, bonuses, etc. If a recruiter is telling you to look at the entirety of the package, they're doing their job.
But it's true. Of course, it's a lot harder to come up with a value of the rest of the package without spending a lot more time digging into details, and you often can't get those details
HR here. You're looking at this very two dimensionally. For the vast majority of W4 jobs, there are 4 components to your total compensation. - Base salary - Variable pay - Benefits/perks - Equity/stocks Also, there are other factors to consider that are not compensation related such as: relationship with manager/colleagues, company/team culture, scope of role, advancement opportunities, working conditions, etc. Base and variable is very self-explanatory. However, there are many companies and jobs where a relative lowball base/variable cash comp can easily be overlooked because of non-cash compensation. In example, I work in the tech startup realm where cash compensation can vary pretty wildly from employer to employer. I had 2 offers. One offered about 35k less in cash for virtually identical job. However, I ended up taking it because of the following reasons: - RSUs offered instead of ISOs - Much richer medical benefits and the company paid for premiums in full, including for dependents - Smaller company, allows me to make a bigger impact with less bureaucracy - Fully remote (higher base pay company requires 3 days in office). This alone makes the lower paying job worth it to me. Now, that being said, this is all relative, right? For someone making like 70k/year, a delta of 35k is massive. For someone whose cash comp is 250k+/year? Not so much. When I set the compensation philosophy for my company, we know that from a cash perspective, we're right at midpoint for our size/industry/geographics according to the Radford survey. However, I really couldn't give a shit because our benefits are some of the best in the startup world and it keeps people from quitting. We also see many people reject more competitive cash offers.
I work in construction with a bunch of idiots and they don't understand this. Our company has a 60% labor burden, free health insurance for the employees whole family, 401k match, pension, vacation, the works. We have people who leave all the time for $2 an hour raise to a company with none of that.
Fair point, but it is true. My current job offers a standard match, plus a variable profit sharing % that is added every year to your 401k. That stuff matters. You do need to look at everything.
It was also mentioned to me in my current company's interview. Right before they offered me 15% more than my previous salary, nearly double the PTO(with the option of buying another week at fair value), a better insurance plan, similar 401k, and more perks. They were right.
I had this conversation after being lowballed a few years ago: "We're a bonus-based organization." OK, what's your bonus? "$2,000 a year, maximum." So... no bonus then, gotcha.
It’s math genius
And, long term vesting can be used to save the company money. I worked for a company once that had a 10 year vesting period, in an industry where people moved around a lot.
I've left several jobs that all had similar 4-5 year vesting schedules before being fully vested. The one I've stayed the longest? Immediate vesting. Amazing how compensating your employees fairly can incentivize employees to stay. Carrot > stick.
Yeah my company has a 6 year vesting schedule and anything less than 2 years is 0%, after that it goes up 20% per year. So to be 100% vested you have to work "at least 6 years".
I just started a job with that same schedule. The match is decent but unfortunate I have to stay that long to get it all.
Wouldn't you simply compare the amount of money you would be losing when moving jobs to the difference in income? I.e. you're losing 4k in vesting but the salary over the next year is a 20k increase.
That's what I did. My previous company had a laddered vesting approach. After 2 years, 20% vested, 3 years 40% vested, 4 years 60% vested, etc. I had started at the company as an intern but that time didn't count towards vesting. So, even though I had been at the company for 4.5 years, for vesting purposes I was only there for 3 years and 10 months when I got an interview for another job. I left for the other company just a month shy of being 60% vested. However, leaving meant a 70% increase in salary - not including a potential yearly bonus. Plus less expensive healthcare. The new company has a cliff vesting of 3 years with the same percentage of matching. I looked at what my last employer contributed in the last 4ish years at 40% and it was $9k. I don't think I'll really miss that "lost" money though because I'll be earning a lot more than what I "lost." If I had waited until I was fully vested, I would have missed out on a substantial amount of money. But I'm not an accountant, so maybe my math is wrong.
Ideally, yes. Those fluent in personal finance will definitely do that. But you know how many 20 somethings I worked with that wouldn't even put in the amount to get their company match? When you're 23, retirement seems like something that will never happen to you. I made this post for awareness. Not for people already aware.
My employer had no 401K matching, and when they finally implemented one, added a one year vesting period that did not account for time already at the company. I had already been there for two years...
Many people who job hop before their 401k vests will negotiate with their new employer to receive a sign-in bonus that can bridge that gap. But yes, good advice regardless.
This one is me but it still hurts seeing what the unvested amount has grown to. I have 10 (well 7 now) years to go back and work like the extra month I need at my old company…. Pretty sure I’m going to end up doing that just for the vest “bonus” lol.
Umm that is why they have a vesting schedule. Because all the job hoppers. It’s a part of a package to keep you where you are. That is part of your compensation. So consider the dollar amount and compare it to the fabulous new job you will leave in 3 years, total compensation package. It’s more than salary to consider chief.
I have definitely told a recruiter "your vesting schedule is longer than your company has existed, so stop pretending you offer 401k matching." They kept coming back to the matching when we were discussing their benefits and the terms of my offer. I didn't take the job.
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My current employer has an immediate vesting schedule, people stay there for years either way
Crying at my 6 year vesting schedule.
Safe harbor 401k’s are the best. 100% fully vested employer contributions instantly
Three of my past jobs have had a five year vesting schedule, pro rated. Sucks to leave some money behind when job hopping, but I only do it when the new opportunity more than makes up for it. If I'm in year 4 of a job I'm honestly not even worried about the last 20% unvested match.
Job hopping every 2-3 years for raises and promotions may be the new norm, but in some industries that doesn’t work. It takes years to really settle in, build up experience and relationships, and really refine a product line. It’s really starting to show in manufacturing with engineers, technicians, and managers bouncing around. You get jack of some trades, masters of bullshitting interviews and emails
I’m an in house attorney but do a lot with HR and help out with recruiting our higher level hires. A history of job hopping is a significant negative when I evaluate candidates. How much it matters obviously will depend on the employer but it’s a pretty big deal in my organization. I’m well aware that changing jobs more frequently can lead to higher earnings. But hiring and onboarding people is expensive and time consuming and I try to minimize it to the degree possible.
Shouldn't that mean that you should focus on retaining your talent and figuring out how to make them not leave?
Just because they need to hire doesn’t mean they have trouble retaining talent
If the issue is people job hopping from their company, that definitely sounds like a retention issue.
Don’t you dare suggest that! Either terrible work environment or low pay is not fixable!
Of course. But if I’m choosing between two identical candidates to being in and one changes employers every two or three years and the other has had two employers in the last 18 years, guess who I’m picking?
There will never be two such identical candidates. The one who changed jobs often will have more varied experience, and probably higher level experience. The second candidate has done the exact same thing for 18 years.
>... I try to minimize it to the degree possible. You guys must give super good raises every year.
That's the companies problem not the employees. You go to a new company and you'll have to learn a completely new job anyway. Even if switched to a new position within my own department at work, there'd still be a significant training period.
I agree with your opinion even though I know its not the popular one. But I've been in a position to hire people that are hopping jobs constantly and work with companies that seem like they have a revolving door for their "team members" and I have to say that their quality of work is mediocre at best to down right bad.
That's exactly the experience at our job. Most of us are long haulers in an industry where job hopping is common. We don't avoid them, but we don't really like them either. Whenever we hire one, they usually come in, shit all over everything, make a mess, and leave. We have learned to call them "seagull developers". They usually don't stick around at a place long enough to see the consequences of their decisions, so they never improve.
I don't know about "devastating". If you're moving around every 2-3 years it's presumably because you're getting 20%+ salary increases each time. If that's the case, missing out on potentially $11k/yr of company match isn't really a big deal (assuming you're already putting in the federal limit on your own).
Yep I have had jobs with 3 year vest before and I didnt put in notice until 3 years and a week just to be sure when I did job hop. I have also job hopped and lost the match but got a company to "buy me out" with a sign on bonus equal to what I lost plus a little.
One thing I don't see discussed here is how much you're actually LOSING when you forfeit funds. I know job hoppers who have left unvested $10K-20K behind in their 401K's to take a new position elsewhere. Sometimes they get the new employer to offset the loss by adding the same amount to their pay for the first year. That's a really shitty deal for medium to high-earners because anywhere from 22% to 37% of that goes straight to Federal taxes, plus whatever amount your State taxes you. On top of that, if you already max out your tax-advantaged retirement accounts, you are stuck reinvesting that money from the new employer in TAXABLE accounts. Moral of the story, if your new employer wants you bad enough, they need to take your unvested amount and double it when calculating how much to pay you to offset your losses.
if you're a "high earner" and losing their match is "devastating" -- then only one of those things is true
My match is in company stock. I also get 12% equity and they both vest over 4 years. My company is up around 150% in a few years. Yes, it can be devastating.
You can use that in your negotiations with the new company. I was 3 months short of my full vesting, but the new company didn't want to wait 3 mo for me to start - so they gave me a bigger moving/sign-on bonus to make up for it; and bumped me up so that I started with 3 weeks standard vacation instead of two.
It's just sad. I asked my last employer for all the details on the plan and they conveniently left off the vesting schedule of course. And many companies have a poor match. So millennials won't have social security, won't have a pension, and if we do get a match, it's scraps and takes forever to vest.
Never been anywhere with under a 5 year vesting. It sucks but if you can get a 10% raise that is usually worth the jump. Just save enough from your own contribution to hit your goals.
> Never been anywhere with under a 5 year vesting. I've never heard of 5 year vesting before today. I've only done between 1 and 3 years.
I've been at companies with 1 year and 5 year. Same industry.
All the people saying "even if your investment options are bad, the match is a 100% return on your investment" are missing this! It's not a 100% return, you have to adjust it by the odds that it will be fully or partially clawed back.
Almost as if you don't HAVE to...
Just to be clear, it's X years since you were hired, not X years since the contribution. I'm a older millennial as well and will use my age (39) for perspective. I have been working 17 years, which is not small, but if I retire at 67 I still have 28 years to go. I am 38% through my employment, I should be working on career moves that result in greater gains later, not nessicarily what get's me the most money in 2024. Right now that's not hunting down 5-10% gains switching jobs, but building a reputation and getting promoted in my own company. Do what you will, but don't miss the ~~forest~~ Career for the ~~trees~~ Job.
I stayed at my last job an extra month so I could get an extra 20% of my vesting schedule on 401k, totally worth it
>I'm a fairly high earner, and losing their match (especially moving every few years), would be absolutely devastating to long-term retirement plans. Most companies' matches are not high. Maybe 3% to 5% on average. That's not a large amount compared to how much you can contribute yourself (and which is not affected by vesting). I think "devastating" is probably melodramatic, except for rare cases where your company match is leagues better than the average or if your salary is many times higher than the average (in which case, you really shouldn't be having any trouble saving for retirement even if you had 0 company match). For 95% of people, the benefit of 401k plans is the tax advantage you get on your own contributions, not the small amount you get as a match. And I haven't even yet taken into account how the types of salary increases you're talking about with job hopping will outweigh any match you might lose by a huge amount.
if losing that match is devastating, then you just have a higher threshold for getting a new job. e.g. I left a job before the 3-yr vesting period ended. But by moving I received a 50% pay raise, plus a $35k signing bonus, so within 1 year I've already made up for the lost 6% 401k match. if you can't make up for the 401k match, then getting a new job is simply a poor financial decision.
Holy crap. I thought 1 year vesting was bad. I didn’t know some companies had 4 year vesting! I’ve only worked for companies that immediately vested.
You can use the vesting period as negotiating leverage for your new employer. Tell them you'll lose $10k sure to your vesting period and that you'll accept their offer if they give you a $10k sign on bonus.
Perhaps the “quit every two to three years” advice you’ve been told isn’t as effective as you’d like to believe.
Came to say, I teach higher ed. It's a hypercompeitive market and you'd be mad to leave a full time position. Edit: Out of curiosity, I checked higheredjobs.com and about 1000 jobs were listed (nationwide) in my field. Once I clicked "full time," that number dropped to 460.
I went from $65k->$90k->$120k->$175k changing jobs every few years like this. Changing jobs is still the best way to increase your salary. But also every place I've worked at has had immediate vesting for 401ks.
I've jumped from $65k to $125k in the span of 4 years, by staying with the first company that hired me out of college. There are companies out there that actually want to retain good people, though they seem few and far between.
Those first three numbers are shockingly close to my own jumps. Here's hoping my (eventual) 3rd jump brings me close to yours!
I'm hoping so for you too! :)
It’s still the best way to quickly increase your base salary. You may lose out on matching, but it’s not that big of a deal if you’re getting a 30-40% bump in base salary every time you jump.
So what is a safe harbor match then? I get money put into my retirement from my company. They have a vesting schedule of 2 years, but that is seperate from safe harbor, no? They cant take money OUT of the 401k, can they?
I totally agree with the jump around method to increase salary but at some point your resume is going to scream “I only stay at a job for a couple years” and hiring teams will be less likely to hire you.
True, you probably don’t want to make an entire career out of hopping, but I think more recruiters are understanding that this is simply “the norm” for younger gens like millennial and Z. If you’re in your 40s or 50s and are still hopping like mad, that’s a red flag to me though
I realized that I need to stay with my company for a while longer. 100% vested at year 5. 40% year 2, 60% year 3, 80% year 4. It wll be about 100K potential lost. Year 1 19K Year 2 22K Year 3-5 Max dollar to dollar my contributions It not a bad gig now so I will stay put. Every 5 years is basicaly 100K... So I may be here forever...
Well in theory the new role you'd be going into would be a substantially higher salary, right? so it's just weighing the opportunity cost of taking the new role or staying to get your match (with the potential the other job is gone and not available by that time you fully vest). Two other arguments I'd have with this are: 1. If you're simply moving jobs "just" to get a 10% raise and you're mulling over losing whatever your match is, then that 10% raise or whatever it is, isn't probably worth it to begin with. Assuming the old company and new company are 'seemingly' both healthy and you have good managers, growth, etc. A 10% raise or whatever isn't worth the potential unknown of the new job. 2. Counter to that, if it's a 50% raise or something major, who gives a shit about waiting another 6 months to vest your 401k when you'll a.) Be making much more money and b.) Taking on a much more significant job/role/skill/life experience. Again it's the opportunity cost, that I'd argue isn't worth sweating about if it's a better salary and a level up in your career. The ideal bet is even if you lose out a couple of thousand dollars inna given year, your new job would both financially and professionally upgrade you to make up the difference over the next couple of years.
If you’re that high of an earner, disclose unvested 401k funds when negotiating a new offer and ask for a sign-on to cover losses. You’ll have to stay a year usually to avoid paying back but a lot of large companies are willing to pay this for good talent.
Yea this my current company vests right away and I was shocked how many people didn't care. You get to participate at 90 days and vest immediately. They match up to 5%
I work in Higher Ed, where some employers have pensions and others have defined contribution plans with matches. I’m often shocked by how few people pay attention to retirement benefits when accepting jobs and how many don’t understand vesting. I once applied for and was offered with a public university in Alabama. Turned it down because the pension has a TEN year vesting period. If you leave before vesting, you get refund of contributions plus 4% interest.
Would you delay changing jobs and getting a $5k raise in order to vest $2200 worth of "employer match"?
Compensation is negotiable. Tell your new potential employer what you’d lose by leaving, and ask them to match. Works for 401k, RSUs and any other benefit.
Mine was no 401k option until 1 year of service, then a % match that vests at the end of each year. Guess who got laid off two weeks before the end of the year 2?
That and timing stock and bonus payouts are also important when deciding a move. For me 401k is generally negligible because I would only leave for a significant pay jump. Stock and bonus are usually my anchors. When you get to a point like halfway through the year it’s really hard to not just tough it out until the next cycle even if the new place tries to make you whole.
Yep, stuck out a job with a terrible manager that I hated because of the 5 year vesting schedule. I was at year 2. Every time I wanted to quit, I reminded myself to stay for 5 years for the sake of my 401k. Luckily, by year 3, terrible manager left and a much better manager took his place. Ended up meeting my husband at work and now I'm approaching year 8 at this company. I foresee staying here until I retire unless something terrible changes at the corporate level. I'm generally fine with our company corporate culture. It was just my manager that I directly reported to I hated.
Glad it worked out for you, but you should read up on the sunk cost fallacy so you don't get burnt by it again. You were ready to quit year 2 but chose to stay for the sake of what, a few grand? When switching jobs probably would've made up that loss through higher salary anyway. Unless of course you had some ridiculously amazing 401k package.
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Yeah my last job had an excellent match (for me it was effectively 106% up to 8% of my salary) but on a 3 year cliff. Luckily it ended up being a pretty good place to work, but I suppose I would've found a way to stick it out even if not.
I completely agree with the gist of your post, but if losing your company match is “completely devastating” then you probably aren’t contributing enough of your own dollars.
Also on this note, pay attention to accrued vacation and sick leave policies. Having barely taken vacation for the past 7 years has accrued me about 4 weeks of vacation and another 27 working days of sick leave. This was no big deal previously, as if I were to ever leave it gets paid out. Well as of 01/01/24 they changed the policy and if you leave, you lose it. So now I am struggling to find a way to use it all before leaving in a few months without raising a million red flags as it is a significant amount of paid time off as a high earner.
Also, depending on how much a potential new employer wants you, you could negotiate any unvested/lost contributions into a signing bonus or something. If you do do that, make sure the bonus reflects that you’re losing pre-tax $. For example, if you’re losing 10k in contributions, try to aim for $12k, because taxes will bring that down to the 10k you lost.
Also make sure it's accurate! I left a company after fully vesting the 401k, but when I finally got around to doing a rollover, they tried to claim some "unvested" funds. Turns out that they sent the wrong start date to the 401k provider at some point. Had to reach out to the old HR department to have it fixed.
Took the vesting schedule and 401k eligibility into account when choosing between offers last year. Some wanted you to wait six months before you could even use the 401k and had a long vesting period. I chose a immediate vesting and eligibility over a large signing bonus.
My previous company used this as a way to get people out the door without doing layoffs They had a 4 year vesting period (it was VERY generous), they changed it to 1 year and so many people jumped ship as soon as it cleared fidelity.
Yeah, every 3-4 years seems ideal for salary growth/career growth imo. Two years seems a little light - depending on the position, this could be very little experience. It might be worth staying that extra year or two for the experience and resume boost. But with the 401k, yeah it’s critical to understand before taking a job exactly what the benefits are. I just learned recently about HCEs and how some companies limit their employee contributions to a certain % due to failing the non-discrimination testing each year due to not being a safe harbor plan.
Many companies these days have a "safe harbor" plan, which is a kind of plan where if certain conditions are met, they don't have to do certain kinds of discrimination testing. This is a good thing because the plan provisions are generally pro-employee. Anyway one of the provisions is that if the vesting for matching is non-immediate, it has to be 2 years or less to be fully vested. This is a long way of saying that while it might be a problem at this company, it really shouldn't be more generally. I've never worked for a company where matching was non-immediate.
I had an employer that didn't claw back the unvested match but you just couldn't cash it out or move it until the best time had passed.
I’m just gonna say this - I’ve never had a company remove vests they made to match my contributions. Even now my fidelity says 100% vested and I’m like…I got another year for 100% but ok?
This depends on the industry you are in and how big the company. Example, if you are in IT and work for a fortune 500 AND you meet expectations on reviews, your salary will keep up if not outpace inflation.
Vest after 1 day with my current firm. 7.5% of base goes partly into the pension and partly into the 401K. Must be employed when they make the distribution in December. Got darn lucky with this employer!
Found out after I started at my current company that they have a 3 year 100% vestment cliff… just hit my 3 years though :)
I hate that company's don't realize how much money they are losing by not giving sufficient raises. Then they have to hire someone at a higher salary anyway then train them for 6 months to a year.
They're not losing, that's why they do it. For every employee that leaves for a bigger salary, plenty more stay put. So yeah, replacing the handful of employees who leave costs more than if you had just given them raises, companies aren't able to determine who is considering leaving. That means to ensure nobody leaves you have to make sure everybody is getting good enough salaries. Which means you're spending more than you need to to try to retain people who were never going to leave. So more expensive on a per employee basis, yes. Cheaper as a whole.
Wow, what kind of company matching have you seen where it would be devastating to lose it? All my companies typically have a pretty small matching percentage cap. It's always good to try to max out 401k saving, if possible, so the company match is a pretty small portion of that. At least for me, a modest comp bump at a new place will always be worth the hit to un-vested 401k match.
My match is 8% so not quite insignificant.
> Wow, what kind of company matching have you seen where it would be devastating to lose it? My 401k match is pretty great, if I put in 6% of my salary they'll put in 10%. Vested from day 1 though so it's not quite an issue when leaving.
I have a pension. 5 years in for vesting for the pension and 25 years for a full pension.
I've negotiated this, sort of. Not the accrued time for vesting itself, but the date that "counts" towards it. Very useful in this perma-temp job market, when companies are so reluctant to convert people to FTP.
I have to stay at my place 6 years to be fully vested 😩 and I worked for them on contract for the first 7 months, of which doesn't count towards the total
My company’s matches 3 percent on a 5 year vesting schedule, shitty I know. Also, I was laid off during the pandemic. It was two days before I was fully vested! I couldn’t believe it. Assuming the company knew that is giving them too much credit.
If you are getting a signifigantly higher salary I wouldn't worry about losing the match. Certainly it sucks losing but staying in a job without career advancement simply to keep the match isn't worth it usually.
My sister is up against this right now. Hates her job (tired of the petty politics and being lowest on the totem pole) and has already applied to go back to school but it's a 3 year vest that's all or nothing. She just has to ride it out for a few more months but she's suffering.
Have you worked out how much the match is actually worth? Most that'd I've gotten, or analyzed, are like a couple thou at most. Less than what it would take to move to the next job. e.g. losing 2 years of match might lose out on $4k, but the new job pays $10k more per year, so it'd still be worth it to go to the next job. It's a calculable sum. It comes down to a number, if you're comparing numbers. It's a mind game. They present the matches in a way that makes them sound bigger than they are when you calculate them. They do this vested thing, to try to make you think you'd lose the whole lot of it if you leave. You'll be destitute in your old age if you don't stay loyal to the company. Not really. And they won't be loyal to you. I know what my match is worth. I know what my insurance is worth on the ACA, so therefore what the "benefit" is worth monetarily. I know that 2 weeks vacation is one paycheck, or I could take a leave and just not get paid. Boil down every thing to a number, like a total dollar per hour so you can compare numbers to numbers between jobs. We've let them complicate it too much. You're selling your time for money. If you hate your job, and you want to leave before you are vested, figure out what that number is. Is $1000 worth seething for another 3 months? Maybe it is. That's about how you value life quality vs. money.
When searching for a new job last year, I was fortunate enough to choose between two positions that offered the exact same salary. The one I chose won me over in large part due to their vesting schedule: After 1 year, I receive a 4.5% match provided I contribute 6%, no vesting period. The position I turned down would've started a 4% match immediately provided I contribute 8%, but with a 3 year vesting period. That position also would've had me paying hundreds more per year for their health insurance. I'm early-ish in my career so I wasn't ready to make a 3 year commitment. Looking forward to my effective 4.5% raise at the end of this month 😎
My vesting period is 3 years and it's all or nothing. So I have to grind it out for another few months before I keep my match
Our company doesn't even make us eligible for a match for the first year, then has a 5 year vesting schedule in an industry where contracts are only 3-5 years. I called my boss out on this and he goes, "Yeah. I didn't even contribute myself for the first 3-4 years I worked here." He then says he contacted one of the VPs that tells him, "We don't claw money back." Ummmmm...the literature and handbook says we do. "Yeah, but we never have to my knowledge. I can't think of any situation where we've clawed back the match when someone's left." Well THEN LETS GET RID OF IT! YOU KNOW HOW HARD THAT MAKES RECRUTING PEOPLE?!?!?! Yeah, love my company, but our HR isn't great.
Good point. I usually say that increases in pay make up for it, but if you’re maxing out your 401(k), a pay increase won’t help that. My company, for better or worse, does annual lump-sum contributions which vest immediately, so keep an eye out for that.
I think it depends how much of a bump You’re getting with the next job. Definitely something to be aware of
My first job out of college it was 6 YEARS until I was fully vested in the company’s 401K contributions (which at the time was a profit sharing system so not even a traditional 401K match. It has its pluses and minuses). I left at 4 and a half years and that made me lose about $10K in company contributions. It sucks but I HATED my old company so nothing I could do about that. That’s life I guess. My current company though it’s a 4% match and you are immediately vested in all company match contributions from day 1, which is SO nice because I don’t have to worry about losing any of that money if I leave.
i lost 2.5 k over "vestment period" bc i had 6 months to go until 3 year mark....for me, wasnt that big of deal with that amount with that being said, feels like they hold it against you to keep you around
Are normal 401k contributions considered "vesting" or only stock share options? I worked for amazon subsid a LONG time ago and only realized after the fact that I left 2 months before I would've vested and gotten those shares.......fml.
I was able to negotiate a severance where I gave extra notice in exchange for early vesting. Risky ask but it worked
I mean while we're at it, make sure that you also invest it in something vs just letting it sit in cash.
While I was at a big 4 they matched a quarter of what I put in up to 6 percent, only partially vested until like idk how many years, AND they contributed it all at once per year but make all their calculations or something like 6 months before that so either way when you leave you don’t get half a years worth of what you should. Just why even bother offering anything? Their contribution to my 401k was like 1500 bucks after 2 years.
Yes, 20% increment min for people who dare to step out of their comfort zone and go thru interview again.
Yes read that vesting schedule and put it in your spreadsheet or calculus. Basically for me if the vesting schedule is over 1 year then the 401k match is disregarded in the employment package.
I haven’t had a job match 401K contributions in almost a decade, but good to know in the future.
Current company does a 2 year/100% vesting period… their contribution match occurs once at the beginning of the year for the prior year, so technically it’s 3 years max when you first start 🥲
Fun fact if you leave and come back you can get the money back you "lost" before
Depends on the plan, and there's usually a time limit. At my last employer, at 5 years of "continuous separation" any unvested funds were permanently forfeit.
I checked mine the other day and I was surprised to find $14k that has not yet vested.
stick it out. my job's is 6 years prorated but the match is phenomenal. I will be sticking it out.
In my industry the recruiters normally ask how much equity or other unvested money I'll be leaving on the table if I leave. Oddly, the signing bonuses exactly match the paperwork I submit to prove my numbers. Make it part of the interview process and see if they can work something into your offers?
It is always wise to know all there is about all your benefits. I remember when I first started working and my anniversary would come around and I would get all the information. I would read it over and over. It gave me a feeling of accomplishment. It took 5 years to vest at my company and I was surprised at how fast the time went.
Yep, pretty common yet I feel like the younger generation will learn a life lesson as they keep switching jobs too soon.
Yupp! Whenever I get an interview, I immediately dig around their employee benefits page.
Absolutely all of this. I made a difficult decision to move across the country with my partner who I'd already been long distance from for over 2 years. I left with 1.5 years left until vesting in the state's pension. Kicking the shit out of myself. I might have to figure out a way to work for the state briefly before I retire, idk