2

I have a complicated 401k situation.

I had a contract job and the contract I was on got cancelled. I did not voluntarily quit, and I was not fired with cause. My contract was cancelled due to a restructuring of my company's contract.

I have my 100% vested contributions I made, of course. My contracting company also had a matching contribution. This contribution is 0% vested. Normally, in such a circumstance I understand that I will not get any of the balance which is not vested.

My account is currently showing both the vested and not vested balance. This is because in theory, if I return to the company and work another year (won't happen) at some point in the future, then the not vested portion will be vested.

I know that if I roll it over to my new employer's 401k account I will immediately forfeit it all.

However, I do know there is a rule that if the employer terminates the 401k plan, that they have to immediately make all contributions 100% vested.

Before I lost my job, I was told that they are planning on switching investment companies in the near future and that they will switch to matching contributions being 100% vested immediately with the new company.

I'm thinking of holding the money in that account until they switch companies, hoping for one of two scenarios:

  1. They end up vesting me 100% after the switch because of the new policy and/or the new investment company won't be able to track separate vesting policies. Note that there's no guarantees that they actually will change the policy as I was told - those were "plans" and plans are always subject to change.

  2. Perhaps changing their investment company constitutes a "termination" of the original 401k therefore entitling me to 100% vesting.

My question to this community is, does the "termination" rule apply as I stated in #2 above? Would they have to vest my balance? Or may I still end up having to forfeit that money?

2
  • 3
    Changing who manages the 401k is not the same as terminating it and restarting it. It is just a change of who keeps track of the stuff.
    – Jon Custer
    Jan 19 at 0:11
  • 2
    My guess is ‘no change’. They will transfer all ongoing vestings as is, same dates, same vesting progress.
    – Aganju
    Jan 19 at 1:38

1 Answer 1

2

I have been through a situation similar to yours. My former employer switch custodians a couple of year after I left, and they also made a change to the vesting schedule. I was keeping the money in the 401(k) because if I returned within 5 years I wouldn't lose the 40% of their contributions that weren't vested.

  1. Perhaps changing their investment company constitutes a "termination" of the original 401k therefore entitling me to 100% vesting.

The switch of custodians didn't do anything to my vesting percentage. I was still at 60%. I do not know what they did if former employees were under $5,000. A employer can force former employees to move their funds out of the program if they are under $5,000, but not all do this.

The old program didn't terminate when they changed custodians.

  1. They end up vesting me 100% after the switch because of the new policy and/or the new investment company won't be able to track separate vesting policies.

My old company also changed the vesting schedule. If I had worked under the new plan I would have hit 100% before I left, but they didn't retroactively increase the vesting percentage of ex-employees. The quarter after the 5 year gap happened the un-vested part was withdrawn.

The new policy would have brought me to 100% if I rejoined the company. They ported rehired employees who came back within 5 years to the new schedule.

The custodian had no problems with the new vesting schedule, because in either case ex-employees vesting percentage was frozen.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.