Question about retirement vesting

[Frugal Nurse]

I recently started at a new job, which I only plan to stay at for 18-24 months. My employer gives me a 200% retirement match, but it is a "5-year cliff vesting" policy, so when I leave before the 5-year mark, I will lose that 200%. I will be completely worth it, because the loss will be about $20K or so, but I will be leaving to be a travel nurse, which should net me a $40K or so /year raise.

Anyhow, my question is this: Will I also lose any interest collected on their match? Or would I just lose the exact dollar amount of the match and get to keep all my interest? I asked the retirement representative during my orientation, but they didn't really know.

[adela76]

When I left a company early, I lost both the match and any earnings generated by the match. It was pretty clear on my investment statement, there were two balances: current balance and unvested balance. The unvested balance reflected the earnings (or losses), not just the dollar value contributed by the company.

[The Walk of the Penguin Mich]

I also lost both my match and the interest when I left my last job.

[Deleted]

Are you sure it's all or nothing? My last job in NJ also had a 5 year vesting period, but the amount vested increased every year and you were fully vested after 5 years.

But to answer your question, I left after 3 years and only got 60% of their match plus interest (the amount that was vested). They kept the remaining 40% and the interest it earned during that time.

[Frugal Nurse]

cawiau- Yeah, I'm sure I will lose it all. It is a cliff-vesting program, not gradual vesting. I'm not too worried about that, since I knew going into this job I wasn't going to stay the five years to get vested. It would be nice to keep the interest though- I'm greedy like that :-)

Thanks everyone for the replies. Guess I will contribute more to the plan than just the % they match. No worries, the raise I get when I start traveling will more than make up for it.

[Deleted]

If you ultimately will get no match, why do the program at all? How about a Roth IRA on your own?

[Frugal Nurse]

MMC- I guess I just don't know enough about investing to know that a Roth would be beneficial. The 403b contributions come out pre-tax without me having to think about it, which makes it easier. Plus, if for some insane reason I end up at this hospital for five years (it is VERY doubtful), then I would get to keep my match. What would the advantage of a Roth be ? (that might sound snarky, but I really am curious)

[The Walk of the Penguin Mich]

If you ultimately will get no match, why do the program at all? How about a Roth IRA on your own?

If frugalnurse works the same place I do (and I think she does), then there is no option to opt out of the 403b.

Once upon a time, back in 2000 when I first started there, it became mandatory when you hit 30. Now I believe it's mandatory upon employment. But with a 10% of your income being deposited into your 403b, even if there's a question as to your length of employment, would you really want to give up that possibility and lose that large a match?

ETA: According to the website, it is still voluntary up until age 30, mandatory if you're older.

[Frugal Nurse]

Wow Mich- do you really work for the same employer as me? You're right- It is voluntary until you're 30, and I'm 27, but I still want to be putting something back for retirement.

[Deleted]

Sept 11, 2011 20:08:57 GMT -5 The Walk of the Penguin Mich said:

If you ultimately will get no match, why do the program at all? How about a Roth IRA on your own?

If frugalnurse works the same place I do (and I think she does), then there is no option to opt out of the 403b.

Once upon a time, back in 2000 when I first started there, it became mandatory when you hit 30. Now I believe it's mandatory upon employment. But with a 10% of your income being deposited into your 403b, even if there's a question as to your length of employment, would you really want to give up that possibility and lose that large a match?

ETA: According to the website, it is still voluntary up until age 30, mandatory if you're older.

Is this the type of program that is in place of contributing to social security?

[Frugal Nurse]

mmc- no, I still contribute to social security as well. I really don't know why they force you to contribute, but I have a co-worker who is over 30 that received a letter stating if she didn't sign up for the retirement plan by a certain date, they would consider that her resignation.

[bimetalaupt]

Sept 11, 2011 13:01:47 GMT -5 Frugal Nurse said:

I recently started at a new job, which I only plan to stay at for 18-24 months. My employer gives me a 200% retirement match, but it is a "5-year cliff vesting" policy, so when I leave before the 5-year mark, I will lose that 200%. I will be completely worth it, because the loss will be about $20K or so, but I will be leaving to be a travel nurse, which should net me a $40K or so /year raise.

Anyhow, my question is this: Will I also lose any interest collected on their match? Or would I just lose the exact dollar amount of the match and get to keep all my interest? I asked the retirement representative during my orientation, but they didn't really know.

frugalnurse,
She short answer is do it to it... You are buying into the market a the low end and could make a lot of money..
Go aggressive.. Small caps and international should be very heavy.. You are not risking much on your end .. And things could change and you may need to stay etc.

Let say just for argument you are in the 39% tax bracket.. The stock will cost you only 61%.

You may want to re-ask this on IBB or MT.. There are some real sharp number crunchers over there that can give you a lot more info. The last year I worked I was able to put in $16,000 +/- in a 401 with a 3% match.. The also called it for the IRS.. Salary reduction plan.. Saved more money then the 3% match.

If you want to be more defensive I posted the efficient frontier study for long term thinking.. Short term high beta stocks are more risky but with the market down as much as it is the return could more then offset the risk.. Ask Frank the Impaler for more details!!!

Sum: The tax saving will offset and is better then nothing with SS in Hot Water...

Best of luck...Just a thought,
Bi Metal Au Pt...

Attachments:

[The Walk of the Penguin Mich]

Is this the type of program that is in place of contributing to social security?

No. I contribute to SS too.

[The Walk of the Penguin Mich]

Wow Mich- do you really work for the same employer as me?

I think so, not too many employers ask their employees to contribute $26/mo for their health insurance.

[mwcpa]

employer "matches" to employer provided 401(k)/403(b)/etc plan can "vest" in many different ways....

it can be over time over say 6 years.... 0, 20, 40, 60, 80, 100..... or it can be a cliff as noted by the original question... 0, 0, 0, 0, 100.....

that means the longer you stay the more your employer rewards loyalty...

any "earnings" on the employer match stays with that match....
any "earnings" on your contributions stays with that....

So, assume a 5 year cliff vesting...
I put in 1,000....
my employer puts in 1,000.....

It's now 2 years later and leave the employer at a time when the value of the plan is 5,000.....
my part of the plan is worth 2500
the employer match is worth 2500

when I leave I get "my" 2500 and I forfeit the employer 2500....

now, had the vesting been 0,20,40,60,80,100... and all things in my example are the same...
when I leave I get "my" 2500 and I get 500 from the employer match (20% of the 2500), but I forfeit the employer 2000 (the balance of the employer's share)....

[Frugal Nurse]

Sept 11, 2011 23:06:51 GMT -5 The Walk of the Penguin Mich said:

Wow Mich- do you really work for the same employer as me?

I think so, not too many employers ask their employees to contribute $26/mo for their health insurance.

Wow, what a small world it is.

[Havoc]

Sept 12, 2011 11:41:20 GMT -5 Frugal Nurse said:

Sept 11, 2011 23:06:51 GMT -5 The Walk of the Penguin Mich said:

Wow Mich- do you really work for the same employer as me?

I think so, not too many employers ask their employees to contribute $26/mo for their health insurance.

Wow, what a small world it is.

LOL - and now frugalnurse will be looking over her shoulder, wondering who/where Mich1 may be....

[midjd]

MMC- I guess I just don't know enough about investing to know that a Roth would be beneficial. The 403b contributions come out pre-tax without me having to think about it, which makes it easier. Plus, if for some insane reason I end up at this hospital for five years (it is VERY doubtful), then I would get to keep my match. What would the advantage of a Roth be ? (that might sound snarky, but I really am curious)

I'm no expert, but what others have said (and I agree) is that it's not a good idea to have all your eggs in one "tax basket".

None of us have any idea what tax rates are going to look like in 30 years - there could be no federal income tax and a 10% federal sales tax, or "wealth tax", or the lowest bracket might be 30% - so it's generally a good idea to have some retirement funds tax-deferred, and some taxable. That way, you've hedged your bets against future tax rates.

You wouldn't want 100% of your retirement funds to be in a deferred comp plan and then find yourself in a 70% tax bracket when you retire... and by the same token, you wouldn't want 100% of your retirement funds to be in a Roth and then find that the national sales tax eats up another 10% of your funds.

[Frugal Nurse]

Sept 12, 2011 11:50:37 GMT -5 Havoc said:

Sept 12, 2011 11:41:20 GMT -5 Frugal Nurse said:

Wow, what a small world it is.

LOL - and now frugalnurse will be looking over her shoulder, wondering who/where Mich1 may be....

Haha, well I'm pretty sure it is the biggest employer located in the city, so it could be anyone. I just hope her real last name isn't Todd, because then we'd have issues...

[The Walk of the Penguin Mich]

LOL! Now I'm positive that we're employed by the same employer!

Nope, not Todd.....

[moneymaven]

Frugal - you should verify how the plan determines a year of service. With our company plan, it requires 1000 hours in one calendar year, not based on an anniversary date.

[Frugal Nurse]

Ins- it doesn't matter, I don't plan on being here long enough to accumulate 5 years of service, even if a year is 1000 hours

[moneymaven]

Yes, but cliff vesting allows you to have a vesting amount per year of service. So, if you leave in 2 years, some of that may be vested. I didn't read the whole thread - do you plan on leaving within a year?

[The Walk of the Penguin Mich]

Yes, but cliff vesting allows you to have a vesting amount per year of service. So, if you leave in 2 years, some of that may be vested.

It's all or nothing. If she leaves in 4.5 years, she gets nothing. She stays 5 years, she gets her 10% match for the 5 years.