401k Matching Rules Regarding Losses when Match is Revoked

Question

My employer matches my 401k but it is on a long vesting schedule and I will almost certainly leave before it finishes vesting. I know I will have to give it back but was wondering how to gains/losses on the match work. Which of these scenarios is accurate?

1. I put in 5000
   Company puts in 5000
   Market goes down 10% 
   I leave the company and they take back 5000 of 401k
   I am left with 4000

2. I put in 5000
   Company puts in 5000
   Market goes down 10% 
   I leave the company and they take back 4500 of 401k because of the losses on the match
   I am left with 4500

If scenario 1 is the correct logic, is there a way that I can opt out of the match? I only see the market going down so any match is only going to hurt me when I have to pay for the extra losses. Thanks

Answer 1

Option 2 is close.

2. I put in 5000
   Company puts in 5000
   Market goes down 10% 
   I leave the company and they take back 4500 of 401k because of the losses on the match
   I am left with 4500

The group administrating the 401(k) keeps track of the source of each dollar in the account. They know what was contributed pre-tax, post-tax, Roth and by the company. If you look at the most detailed investment breakdown they shuold tell you the balance by each of he sources. They should also tell you how much growth/loss is attributed to each of those sources.

When you leave they will remove x% of the funds associated with the company match and its gains or losses.

Note: some companies may put bonus or profit sharing into the 401(k), check to see if the funds from that source follow the same vesting schedule.

Timing: the company rarely removes the un-vested part right away. The last company I worked for waited to the end of the quarter after you has been gone for 5 years. The delay was because if you rejoined within 5 years they would still consider you as being on the vesting schedule.