Today's DueNorth Insight - Vesting Schedules

Today's DueNorth Insight - Vesting Schedules

November 24, 2021

Today’s DueNorth Insight is vesting schedules. And if you watched my video about 401(k) matches, this fits right in. So why are vesting schedules important? Well lets start by defining it, what a vesting schedule is is how much of your employers contribution, to let’s say your 401(k) in this example, you actually own if you were to separate from service or in other words leave your job.  And there’s many types of vesting schedules but we’re going to go over two of the main ones today.

And the first one is cliff vesting, so what that means is that you don’t actually own any of your employers’ contributions until a specific date. A lot of times we see a 3 year cliff. And so what that means is that your employer is still matching and contributing to again let’s use your 401(k) as an example here, but if you were to leave your job before that 3 year period is over you would not be able to take any of their contribution with you. Now if you do hit that 3 year period, you would be what we consider fully vested and that whole amount would go with you, and anything you earn thereafter.

The second type of vesting schedule we’re going to talk about today is called graded vesting. And what this is, is your employers contributions being gradually vested over time. And a lot of times we see this in the form of a 6 year graded vesting schedule. So after the first year we don’t see any vest, but then after the second year we’ll see 20%, then 40%, then 60%, then 80% then 100%. And then again after 6 years you would be what we consider fully vested and anything thereafter you would own as well.

Now this is super important to know if you are ever considering a job change, it’s good to read the fine print and understand if you’re vested and if that money would actually be going with you. And if you are considering a job change and you’re not fully vested, it might be a good negotiating point with your new employer that way hopefully you can prevent leaving money on the table. And that’s today’s DueNorth Insight.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.