I left my job after a few months. I was not fully vested. Why is the non-vested amount still on my 401K plan?

Question

I left my job after a few months. I was not fully vested. Why is the non-vested amount ($1000) still on my 401K plan? Why doesn't the employer just take the non-vested money away and put it in their bank... are they gaining something from keeping it there along with the vested money on my 401K plan?

Answer 1

The last time I switched companies the old company had a vesting policy that allowed a 5 year gap in employment. If the employee returned before the 5 year deadline then they would continue along the path to full vesting. In fact a few years later they changed their policy to shorten the vesting schedule, and in my case if I return before the 5 years is up I will be fully vested on the first day of reemployment.

If I roll over the funds from the old 401K before returning I will lose the forfeited funds and they would not be credited to the 401K upon reemployment.

I know of several other companies that do something similar. It is possible that yours does this also.

Answer 2

The nonvested money isn't coming out of anybody's pocket until it is actually vested. When you rollover your 401k to something you have complete control over you won't get the nonvested money.

There's also a good chance that the 401k company is unaware of your change of employment and so they can't presume that you're not going to be able to vest it. If they do learn of your change of employment they will start notifying you that you can only stay in the program for 1-2 years after you're no longer working for the sponsor company. You will need to rollover the 401k before too long.