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We are reviewing our 401(k) plan, and would like to know what vesting terms other companies use.
We are also interested in knowing how long new employees at other companies have to wait before becoming eligible to join the plan.
(Anonymous)
Responses:
We received 64 responses to these questions, which is the best response we have ever had to a question asked through FELIX PC.
Here is an analysis of the responses:
Eligibility
Immediate: 15 responses
New employees at almost one fourth of all responding companies are eligible to participate in their company’s 401(k) plan upon employment. Here are some of the reasons that were provided:
“We are trying to encourage more participation. We used to have a six-month waiting period.”
Steve Evans (Steve_Evans@permacel.com )
“Previously, it had been one year, which we felt was not sufficiently attractive to prospective employees.”
Gene O’Sullivan (gosulliv@elliot-turbo.com )
“We vest immediately, feeling that the advantage in terms of enrollment more than offsets the advantage of retention or risk of loss. Our demographics, however, are a highly technical workforce with low turnover.”
Bob Scherba (RScherba@williams-int.com )
30 days or after the first full month of employment: 5 responses
Here are some comments:
“We’re not worried about an employee leaving quickly.”
David Chemerow (davidchemerow@comcast.net )
“Unless you are in a seasonal industry, or one like retail with high turnover, I would think it is a recruiting disadvantage to make new employees wait to enroll.”
(Anonymous)
First day of the quarter following enrollment: 6 responses
This comment provides a reason:
“There are only four enrollment dates, which is easier for administration.”
(Anonymous)
90 days: 8 responses
Here are two related reasons:
“We have a 90-day waiting period, which is the same waiting period as our other benefits.”
Ed Ashton (EAshton@MacLean-Fogg.com )
“Our waiting program is the same for our other benefits programs, 90 days. It used to be one year, and we felt that there really was no cost to the company in the first year.”
(Anonymous)
First enrollment date (January 1 or July1) following a probationary period: 5 responses
One member provided his reasoning:
“It is a good recruiting tool, and does not cost me much more than if the employee had to wait.”
Jim Edge (edgejim@aol.con )
Six months: 10 responses
Here is one member’s explanation:
“The issue for us is that a lot of our turnover occurs in the first three or four months of employment, so the eligibility of those very short term employees is likely to adversely affect discrimination testing. By six months, hopefully the parties are happy with each other, and it gives the company ample time to communicate the program.”
Russ Packer (russ.packer@sbcglobal.net )
January 1 of the year following the first year in which they gross $5,000 or more
1 response
One year: 14 responses
Vesting
Although employees at some companies are completely vested sooner than one year, over half of the companies responding make the employees wait five or six years before they are 100% vested.
Immediate: 7 responses
90 days or three months: 2 responses
Six months: 4 responses
One year: 7 responses
One member provides his reasoning:
“The reasoning was that the maximum turnover is between 1 day and 90 days, so that a vesting schedule shorter than that would pick up a lot of employees that would soon quit.”
Two years: 1 response
Three years: 4 responses
Four years: 4 responses
Five years: 19 responses
Six years: 15 responses
Seven years: 1 response
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