Vesting - Explained

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While viewing your statement or account balance online you may notice an “account Balance” and a “vested balance”. Depending on certain factors these numbers may be the exact same or completely different. This article will help you understand what the vested balance is and why it is more important than your account balance.

What is Vesting?

Vesting is the process by which an employee gains full ownership of the employer-contributed funds in a retirement plan, such as a 401(k), 403(b), Profit-Sharing Plan, etc.

Your employer may have a vesting schedule to determine how long an employee must work for the employer before acquiring full rights to these contributions. This could be a graded schedule where those contributions vest over time, for example 20% vesting each year over a 5-year span. Or a cliff vesting schedule where those contributions vest all at once, for example becoming fully vested only after 3 years and anything shorter than 3 would be forfeited.

How to determine when “Fully Vested?”

Your Summary Plan Description (SPD) found online under the “Statements| Notices & Forms” menu will specifically outline your vesting schedule for any employer contributions. If your Vested balance and Account balance are the same this would mean you are fully vested.

Account Balance vs Vested Balance

When looking at your balance you’ll want to focus on the vested balance as this is the amount that usually is available for distribution, or to determine the maximum loan amount.

If I withdraw, what happens to my account balance that isn’t vested?

Any unvested balance at the time of distribution is forfeited back to your employer within the plan.

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