Use this article to learn about vesting schedules and how they affect your ability to access your employer's contributions to your Gusto 401(k).
When you have a 401(k) with an employer match or a non-elective (profit-sharing) contribution, your employer may also contribute to your account. These employer contributions may be subject to a vesting schedule, depending on your company's 401(k) plan.
Vesting refers to the amount of time you must work for your employer (years of service) before you own certain employer contributions. While you'll see employer contributions applied to your account balance as they happen, you may not fully own them until you have been with your employer for a specified period of time.
Important: You're always 100% vested in your own salary contributions, any rollover balances from other retirement accounts, and any traditional safe harbor contributions.
Your plan's vesting schedule determines the percentage of employer contributions you can take with you if you leave your employer or become eligible for a distribution. At Gusto Retirement, you earn a year of vesting service on the anniversary of your date of hire.
For 401(k) plans, cliff vesting cannot exceed 3 years, and graded vesting cannot exceed 6 years.
You own the contributions right away. Even if you leave your employer within a short time frame, you’ll fully own all contributions applied to your account.
With cliff vesting, you become 100% vested in your employer contributions all at once after a certain number of years with the company (known as vesting service).
For example, if your company implements 2-year cliff vesting, you'll own 0% of the employer contributions until you hit your 2-year work anniversary. At that point, you become 100% vested in all employer contributions up to that point and any new contributions moving forward.
Cliff vesting examples:
1-year cliff vesting
Percentage vested
Prior to 1 year of employment
0%
After 1 year of employment
100%
2-year cliff vesting
Percentage vested
Prior to 2 years of employment
0%
After 2 years of employment
100%
3-year cliff vesting
Percentage vested
Prior to 3 years of employment
0%
After 3 years of employment
100%
With graded vesting, rather than going from 0% to 100% vested after hitting a certain milestone, the percentage you own increases over a set schedule.
For example, if you have 2-year graded vesting, you would own 50% of the contribution after 1 year of service and 100% after 2 years of service.
Graded vesting examples:
2-year graded vesting
Percentage vested
Prior to 1 year of employment
0%
After 1 year of employment
50%
After 2 years of employment
100%
3-year graded vesting
Percentage vested
Prior to 1 year of employment
0%
After 1 year of employment
33%
After 2 years of employment
67%
After 3 years of employment
100%
4-year graded vesting
Percentage vested
Prior to 1 year of employment
0%
After 1 year of employment
25%
After 2 years of employment
50%
After 3 years of employment
75%
After 4 years of employment
100%
To find your company's vesting schedule:
Go to the Settings page in your retirement dashboard.
In the drop-down, click the 401(k) plan you’d like to review.
See the Contributions section for vesting schedules by contribution type.
If you leave your company for any reason before you're 100% vested, you may forfeit all or a portion of the unvested employer contributions. Any unvested employer contributions will be returned to the employer plan's "forfeiture account."
Forfeiture of unvested funds will occur at the earlier of:
When you take a full distribution of all your vested funds after termination of employment, or
Once you have been separated from service for at least 5 years
What happens to any forfeited amount will depend on how long it has been since you left that employer and whether you have unvested funds in the plan.
If it has been more than 5 years since you left the company, you typically cannot earn any more vesting on the amount that was forfeited. That forfeiture is generally permanent.
If it has been less than 5 years since you left the company, the time you work after being rehired may be used to advance the vesting schedule on that forfeited amount. However, this only applies if you either:
Did not take a distribution from the plan when you left, or
Return the full amount of any distribution taken from sources that were subject to a vesting schedule
Please see your Summary Plan Description in Documents > Resource Library for more information about what amounts would need to be repaid and how long you would have to make that repayment.