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If your company matches employee 401k contribution, do you require a vesting schedule?

Do you think vesting that contribution helps employee retention?

Answers

Anonymous
(CFO) |

We are 100% vested from day one. But then again, we are government.

It's your tax dollars at work. :-)

In my experience, the employee retention factor of retirement vesting is dependent on the type of employee and the relative dollar value involved compared to salary.

A five year vesting schedule for a 2% of salary employer contribution to a 401(k) isn't going to be a retention motivator to a $120,000/year, twenty something, tech worker at a swash buckling SV firm. The relative value of the vesting seems immaterial to a younger, non-financially savvy person.

Whereas, a $75,000/year finance employee in their mid 40's would be incentivized by the tax free benefit accrued with a $2,500/year employer contribution to such a plan. They "get it" and tend to look more towards securing their future.

Topic Expert
Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

The company match vests in two years, ratably over the period.

Topic Expert
Malak Kazan
Title: VP, Special Projects
Company: ERI Economic Research Institute
(VP, Special Projects, ERI Economic Research Institute) |

Depending on the demographics of your employees (perhaps other employers in the area), the two to three year matching has become common. If it's much longer, the plan may not be perceived as a "benefit" and serve as a detractor.

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

We vest 25% in two years and 100% in three years. I don't believe it really impacts retention.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

I agree with Patrick. Most companies have a 12 month waiting period, prior to your participation. This policy makes sense. But a vesting schedule after that point just seems to add a level of complication without benefit. The amount contributed by the company would need to be high enough to act as a retention mechanism. The usual situation is a 3% to 5% match, which will not be a deciding factor in the decision to leave, i.e. not golden handcuffs.

Topic Expert
Karoline Mello
Title: Director, FP&A
Company: Apollo Group
(Director, FP&A, Apollo Group) |

Our company incentivizes the retention of top talent by vesting the restricted stock options that are available to the top level employees. The 401(k) match is more of a benefit for recruiting, and there aren’t any vesting restrictions. Employees are encouraged to join from day 1.

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