401(k) vesting schedule can make a work anniversary worth thousands

A 401(k) vesting schedule can make a work anniversary financially significant: reaching a plan’s full-vesting date means employer contributions that had been conditional can become money a worker keeps after leaving. CNBC reported that its author’s sixth anniversary at the company this month triggers full vesting of certain company 401(k) deposits under corporate policy.

For anyone weighing a job move, the date is worth checking before resigning. The potential cost is not a change in your own payroll savings. It is the portion of employer match or other company contributions that has not yet become yours under the plan’s rules.

What does a 401(k) vesting schedule mean?

Vesting is ownership of employer-funded retirement-plan money. Your own 401(k) deferrals are fully vested when they come out of your paycheck, according to CNBC and Employee Fiduciary. Employer matching contributions, profit-sharing deposits or other company money may carry a service requirement instead.

A 401(k) is a defined-contribution retirement plan, meaning its eventual account value reflects contributions, investment gains or losses and fees, the Department of Labor says. Employers can choose to match some employee contributions or make other deposits, but the terms differ across plans.

Under a cliff schedule, an employee may own none of the covered employer contributions before a specified milestone and all of them after it. A common example is three-year cliff vesting: 0% before three years of credited service and 100% at three years, according to Employee Fiduciary.

Under graded vesting, ownership rises in stages. One standard six-year model gives workers 20% ownership after two years of service, then 40%, 60%, 80% and finally 100% after six years. Employers can offer better terms, including immediate vesting, so the examples are not a substitute for checking an individual plan. CNBC, citing 2024 Plan Sponsor Council of America data, reported that 44% of employers immediately vested matching contributions, while 17% used cliff vesting and about 39% used graded vesting.

How much could you forfeit by leaving?

Start with the part of the account funded by the employer, then multiply it by the percentage that remains unvested. CNBC gives this example: an employer-funded balance of $20,000 with 60% vesting leaves 40% unvested, or about $8,000 that could be forfeited if the employee leaves then.

That calculation is an estimate, not a verdict on a career decision. A prospective employer’s salary, signing bonus, total compensation and its own vesting clock also belong in the comparison. CNBC notes that a new role may start another multiyear waiting period for employer contributions.

What to check before a job change

• Confirm the exact service date and vesting percentage in the plan document or Summary Plan Description.
• Review the plan website or account statement for a breakdown by contribution source and for vested versus unvested balances.
• Ask the plan administrator or human-resources team for the documents or clarification if the account display is unclear. The Department of Labor says participants can request a Summary Plan Description.
• Compare the amount at risk with the full package at a potential new employer, including the new plan’s terms beyond the first year.

The Labor Department’s guidance covers private retirement plans governed by ERISA and the Internal Revenue Code. It does not apply to state and local government plans, most church plans or federal employee plans, where different rules may apply.

This story draws on original reporting from CNBC.