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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?

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    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
    Commented Jan 19, 2022 at 0:11
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    My guess is ‘no change’. They will transfer all ongoing vestings as is, same dates, same vesting progress.
    – Aganju
    Commented Jan 19, 2022 at 1:38

1 Answer 1

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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.

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