I have a question about 401K vesting.

I work for a company that matches up to 6% and has vesting plateaus similar to the following.

year 1-3 - 20%
4-5 - 40%
6-7 60%
8-9 80%
10+ 100%

I think I'm a little confused about the vesting part.

I was under the impression that the company matches 100% all the time sort of like an escrow but only adds the % you have vested into your account until you become more vested. As you become more vested they add the additional money from the escrow from the previous years.

For example, when I go from year 3 (20%) to year 4 (40%) I was expecting to receive the additional 20% of their match from year 1-3 they held in escrow but that didn't happen.

Do I have this process wrong cause it seems that my company is only matching the % of the match each year regardless to what was put in previously?

ebaines

My company has a similar vesting plan. The way it works for us is that the company contributes their 6% into the account each month. These amounts are not held in some escrow account - they are actually invested each month in the account and grow (or shrink) with the market just as our own investments do. However, the plan administrator keeps track of how much of the investments and their earnings are due to my contributions and how much is due to the company's contributions. So there isn't some big lump sum that comes to the account at the year 4 mark, but rather some is added with each paycheck. The vesting bit simply means that if you leave the company after only, say, 4 years, you will only be allowed to take 40% of the company match and its earnings with you. But if you look at an account statement today you should see that all your contributions and all of the company's contributions are all accounted for, even if the company's portion is not yet fully vested.