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I have been at my current employer for three years as of March 2020. As per my 401k I am to be 100% vested at year three.

Today, 11/24/19 I received notice that the vesting schedule has changed to be vested after 6 years of service. This notice says this change applies to the 2019 year. This is the first time the vesting schedule change has been brought to my attention. It is particularly concerning as my company chose to send it to me via email, as the close of the 2019 year while I am actually on vacation.

Is this legal? I have read through the IRS website on 401k and see it is legal to change vesting schedule but there is a cut back amendment. However, I can't find any information regarding notice.

Any help would be greatly appreciated.

  • It's crucial to note that you WILL HAVE BEEN at your "current employer for three years as of March 2020." That means you aren't vested yet. – RonJohn Nov 24 '19 at 19:32
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    I'd ask HR if current employees are grandfathered in to 3 years. If they say no, and your "contentment" at the job is marginal, consider polishing your resume. – RonJohn Nov 24 '19 at 19:35
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    I think it’s allowed for them to do this as long as prior contributions vest according to the previous vesting schedule and future contributions would vest according to the new schedule. But the statement that it applies to 2019 puts that into question—unless the company contribution hasn’t been made yet for 2019? But if the company contribution is a match of elective contributions that you’ve already made, then even that seems unacceptable. – prl Nov 24 '19 at 20:10
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    It’s possible that it’s just a typo and they meant that the change is effective in 2020. That’s a pretty bad mistake, but I’ve seen worse. – prl Nov 24 '19 at 20:11
  • @RonJohn the employee might be vested. Many companies count a partial year as a year if they are over X hours in that year. It is possible that they were credited for 2017, 2018, and 2019 before the switch was made. – mhoran_psprep Nov 25 '19 at 3:02
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This is my understanding:

By law, companies are required to vest a company match using a graded or cliff plan. If they use the cliff plan, they must vest no slower than 100% at 3 years (this is apparently what you previously had). If they use the graded plan, they must vest no slower than 20% each year, starting after 2 years.

So, the good news is, if you leave tomorrow, you are vested at 20%.

They can't take away vesting, so anyone who was 100% on the old plan, will remain 100%.

If you might leave before 6 years, you should consider consulting an attorney. But, I would guess that you would not be successful, the amount of match is a bonus, not a guarantee. Companies can cut back the amount of the match (mine did), or eliminate it altogether. Read the fine print of the match plan to be sure.

https://www.research401k.com/401k-vesting.html

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