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If you leave a company that matched 401k contributions before the vesting schedule is complete, the non-vested money is returned to the employer. I'm curious what happens to the gains/losses on the non-vested money.

If your contributions have vested 80% upon your departure, the employer is returned 20%. Is it exactly 20% of their contribution (i.e., the employee keeps the gains/losses from the non-vested money) or is it 20% of the employer-contributed balance in the account (i.e., the employer keeps the gains/losses from the non-vested money?

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On my quarterly statement and the 401K plan website I can see the vesting for various categories.

  • A: My contribution (100% vested)
  • B: My dividends (100% vested)
  • C: Company Match (60% vested)
  • D: Employer Contribution Dividends (100% vested)

They total all these up and report the total balance and the vested balance.

If I do the math I discover that the vested balance is equal to A + B + D + (60% of C)

For my company at least, if I was to leave now I would get 60% of the Company match, which does include significant gains.

This document for the Department of Labor discuss many aspects of 401K plans including vesting.

In a defined contribution plan such as a 401(k) plan, you are always 100 percent vested in your own contributions to a plan, and in any subsequent earnings from your contributions. However, in most defined contribution plans you may have to work several years before you are vested in the employer’s matching contributions. (There are exceptions, such as the SIMPLE 401(k) and safe harbor 401(k), in which you are immediately vested in all required employer contributions. You also vest immediately in the SIMPLE IRA and the SEP.)

Currently, employers have a choice of two different vesting schedules for employer matching 401(k) contributions, which are shown in Table 2. Your employer may use a schedule in which employees are 100 percent vested in employer contributions after 3 years of service (cliff vesting). Under graduated vesting, an employee must be at least 20 percent vested after 2 years, 40 percent after 3 years, 60 percent after 4 years, 80 percent after 5 years, and 100 percent after 6 years. If your automatic enrollment 401(k) plan requires employer contributions, you vest in those contributions after 2 years. Automatic enrollment 401(k) plans with optional matching contributions follow one of the vesting schedules noted above.

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  • Are there laws about what happens to the 40% of the match that you leave behind? Does it just go back to the employer? Do they have to keep it in a 401(k) pool for other employee matching?
    – dg99
    Jul 3, 2014 at 15:19
  • @dg99 it goes back to the employer to do as they please. If accounting-wise it make sense to shift the money to another account instead of depositing new money there - they may do it, but what is it to you?
    – littleadv
    Jul 3, 2014 at 17:43

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