Employer Match Accepted, But Not Immediate Vesting

401k plan best practicesEmployer match for 401k Plans has been widely accepted since the 1980s.  The majority of employers offer retirement plan matching contributions for employees, but few provide immediate vesting.

These are the findings of a recent survey from XpertHR.  In their 2021 Employee Benefits survey (may require registration), XpertHR found that 8 in 10 employers offer a match, but few plans vest workers immediately in their 401(k) programs.  Conducted between March and April 2021, the survey included 452 employers from across the country who weighed in on a variety of topics related to retirement planning.

XpertHR surveyed employers about more than 10 different types of retirement plans, including 401(k)s and Roth 401(k)s.  According to the HR solutions provider, 60% of the employers it surveyed offered 401(k) plans to most of their employees; 43% offered a Roth 401(k) – (note that employers could select more than one type of plan).

Among employers offering traditional 401(k) plans, 82% said their employer match was in place for at least a portion of employee contributions.  However, in that group, just 28% fully invested employees immediately, while the rest had a mandatory waiting period for full vesting.

According to the XpertHR survey, the waiting periods for the employer match ranged from one year to as much as six years for full vesting.  Here is how the waiting periods broke down among the employers surveyed:

  • Up to 1 year: 13%
  • Up to 2 years: 7%
  • Up to 3 years: 14%
  • Up to 4 years: 6%
  • Up to 5 years: 17%
  • Up to 6 years: 10%
  • 6 years+: 1% *

* Some respondents (5%) said they weren’t sure of their company’s policy on waiting periods and vesting.  However, IRS requirements say employer matches in 401(k) plans must be fully vested by at least six years of service.

In addition to focusing on 401(k) plans, XpertHR also asked respondents questions about healthcare and insurance, including fully insured or self-insured options.  The survey found that small businesses were more likely to fully insure than larger ones – 82% of businesses with less than 250 employees said they fully insured their healthcare plans.  By contrast, 45% of companies with 250-999 employees fully insure, as do 21% of companies with more than 1,000 employees.  On the other hand, just 11% of small businesses self-insure.  Among mid-size companies, 50% self-insure, as do 55% of larger companies.

With an increasingly mobile workforce, level setting on vesting waiting periods for the employer match contributions can be tricky.  Every organization is different, and it depends on a variety of factors, including the plan’s needs and the rate of employee turnover.  Employers should look carefully at their vesting policies and ensure they are serving the needs of the plan – the organization and employees.  Subsequently, an employer match reevaluation may be necessary.

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