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Some people who already receive Social Security benefits are automatically enrolled in Medicare when they turn 65. That’s not the case for everyone, though. People who haven’t started collecting Social Security will need to register for Medicare, but signing up doesn’t have to be challenging. Here’s what you need to know about enrolling in the government insurance program. If you’d like personalized retirement advice, consider working with a financial advisor. 

What Is Medicare?

Medicare is a federal health insurance program for people 65 and older, as well as those with disabilities and specific diseases. It’s intended to help provide affordable health care to people who have low incomes or limited resources either due to retirement or disability.

Medicare has three main parts:

  • Medicare Part A covers hospital expenses such as inpatient stays, hospice care and some home health care.
  • Medicare Part B covers medical expenses like doctors’ services, outpatient care, preventative care and medical supplies.
  • Medicare Part C, also known as Medicare Advantage, covers health care related to dental, vision and hearing.
  • Medicare Part D covers prescription drugs.

For most people, Part A is free and Part B requires you to pay a premium. The standard monthly premium in 2023 is $164.90. Parts C and D are accessed via a Medicare-approved plan for which you will also pay a monthly premium. These premiums will vary depending on the provider and plan you choose. 

When Are You Eligible for Medicare?

Leaving aside the minority of Medicare recipients with disabilities or diseases, most will become eligible to enroll in Medicare when they turn 65. You can sign up for Medicare three months before you turn 65.

That period starting three months before you turn 65 is called the Initial Enrollment Period. It lasts seven months, ending three months after the month in which you turn 65. If you miss this Initial Enrollment Period, you’ll have to pay a monthly late enrollment penalty that goes up the longer you wait.

If you sign up before the month in which you turn 65, your Medicare coverage will start the first of the month in which you turn 65. So if your birthday is June 16, and you sign up on May 15, your coverage will begin on June 1.

There’s also a General Enrollment Period each year from Jan. 1 to March 31. Again, your coverage will start the first of the month after you sign up and you may need to pay a late enrollment penalty if you don’t qualify for a Special Enrollment Period. You may qualify for a Special Enrollment Period if you missed your Initial Enrollment Period because of a natural disaster or emergency, got inaccurate or misleading information from your health plan or employer, as well as a few other extenuating situations. In such cases, you can fill out and submit a form to ask for a Special Enrollment Period.

Are You Automatically Enrolled in Medicare at Age 65?

According to the U.S. Centers for Medicare and Medicaid Services, if you live in the United States and are already getting Social Security payments, you’ll be automatically signed up for Part A and Part B of Medicare when you become eligible. So if you’re already claiming your Social Security benefits, you may automatically receive a packet with more information on Medicare a few months before you turn 65.

If you’re not yet getting Social Security benefits or aren’t eligible for them, you won’t be automatically enrolled and will need to complete an application or reach out to the Social Security Administration.

How to Enroll in Medicare

If you’re not already receiving Social Security benefits but need to enroll, there are a few steps to the process. First, make sure you know when your Initial Enrollment Period begins and ends so you can enroll in that time frame and avoid a penalty.

Second, you can sign up online at the Social Security website, which the official Medicare website notes is the fastest and easiest way to register.  You can also enroll by phone by calling the Social Security Administration at 1-800-772-1213. If you’d like to enroll in person, find your local Social Security office for the address and hours of operation.

Bottom Line

If you’re already receiving Social Security, you’ll likely be automatically enrolled in Medicare once you hit age 65. But if you haven’t yet started your Social Security payments yet, you’ll need to enroll in Medicare online, by phone or in person.

Retirement Planning Tips

  • If you’re not sure whether you’ve saved enough for retirement, our retirement calculator can help you get a better sense of where you stand. Use it to determine your estimated Social Security benefits, how much money you need to retire and how much annual income you’ll need in retirement.
  • A financial advisor can help you plan for Social Security, Medicare and retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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Source: smartasset.com

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While retirement may be associated with leaving the workforce behind, most Americans plan to work past the age of 65. In fact, a 2022 study from the Transamerica Center for Retirement Studies found that around 57% of workers plan to work either full-time or part-time in retirement. Financial reasons and a desire to remain active were cited as the main motivators. Here are eight jobs that can keep you active, boost your income and let you work remotely.

If you’d like personalized help managing your finances in retirement, consider working with a financial advisor.

8 Great Work-from-Home Opportunities for Retirees

While there is a myriad of opportunities for retirees to work from home, what follows are some of best, who might be a good fit for the work and estimated pay, per salary.com as of May 1, 2023.

Bookkeeper —

Bookkeepers maintain a business’s financial records, including purchases, sales, invoices, payments and other transactions. The job will require a high level of accuracy. And it will likely take some technological savvy given that many, if not most, businesses use software to manage their finances.

Best for:

Organized and detail-oriented workers with a solid grasp of basic accounting principles.

Average salary: $42,854

Telehealth Nurse —

If you have a nursing degree but hope to transition to remote work, the growing demand for telemedicine may be a great opportunity for you.

Telehealth nurses “see” patients via email, phone and chat. They also videoconference and answer their questions, determine the next medical steps, conduct follow-up appointments and deliver medical treatments.

Best for:

This is good for people who already hold a nursing degree, of course. And in a remote environment, communication skills become more important than ever for treating patients with sensitivity.

Average salary: $85,045

Administrative Assistant —

You may think of an administrative assistant as someone who mans the reception desk, makes copies and orders more coffee. But the remote role has slightly different responsibilities. You can expect to answer phone calls and emails, schedule meetings and appointments and handle many of the things that keep a remote office running smoothly.

Best for:

This is good for people with excellent customer service and time management skills. Being able to multitask is a plus.

Average salary: $45,003

Paralegal —

Paralegals serve as assistants to lawyers, helping investigate and research legal cases, maintaining records, drafting correspondence and putting together documents for trials. The job descriptions for a paralegal will vary widely depending on the law firm, what type of law is practiced, its size and the paralegal’s own qualification level.

Best for:

Those who already have a certification or degree in paralegal studies—though the qualifications required to become a paralegal depend on the hiring firm and an actual degree or certification isn’t always necessary.

On the other hand, if this interests you, paralegal certification programs and associate’s degrees in paralegal studies can be relatively affordable and can require as few as 12-24 months of study.

Average salary: $58,630-117,990 (salary ranges widely vary)

Tutor

Tutoring is another job with a wide variety of possibilities, depending on the age and education level of the students, the subject or subjects taught and more. You can be a generalist who works with elementary school kids on any subject they need help with.

You can also be a specialist who works with college students on writing assignments, an ESL tutor who helps adults learn English, and all kinds of varieties in between. In the big picture, a tutor works with students outside of their classes to help them better understand and implement the concepts they’re learning.

Best for:

People who are patient, good at breaking complex concepts into simple ideas and steps and hold the required credentials. Some tutor positions only require a GED, while others may require a college degree in the subject you intend to specialize in, such as a bachelor’s degree in math for a math tutor.

Average salary: $42,422

Receptionist

A virtual receptionist serves the same role as a traditional, in-person receptionist: They ensure that all customer concerns are taken care of.

While there is some overlap with a virtual administrative assistant, a receptionist will be more focused on the customer side of the office than the administrative, answering phone calls and emails, helping customers who need assistance, scheduling appointments and more.

Best for:

This is good for those with good multitasking and people skills. And some technological savvy ensures that customers don’t slip through the cracks in a remote office.

Average salary: $41,704

Customer Service Representative

In a brick-and-mortar retail shop such as a hardware store, a customer service rep may be walking the floor, answering questions about what someone should buy for their upcoming home improvement project.

In a remote business, customer service representatives serve much the same purpose: answering customer questions, helping them with problems and troubleshooting any issues.

Best for:

People with patience, great communication skills and a solid knowledge base of the products or services being sold by their employer.

Average salary: $37,623

Transcriptionist

The transcriptionist job is a straightforward one: You simply type up recordings. Some transcriptionists work exclusively in one industry. For example, they can work in legal or medical industries, which necessitates a certain level of knowledge of the terminology used in that profession. Others may do general transcription work, typing up whatever is needed.

Best for:

This is good for fast and accurate typists looking for low-intensity work. While some may find this kind of work boring, the right person may find the audio or video they transcribe interesting and value the calm.

Average salary: $41,453

Things to Consider When Looking for Remote Jobs

Don’t Get Scammed

According to the Federal Trade Commission (FTC), a common scam is for a fake company to hire you. And then they send you a check to buy equipment with the caveat that you should send the extra money back. The check is bad and will be returned.

The FTC advises that you carefully review any job offers, only apply to jobs on legitimate websites and never rely on a “cleared” check your employer sends you.

Use Your Career Expertise

One of the best ways to find a new remote job is to use the skills you already have. You may be able to find a less demanding and remote version of your previous career. And going into this new job with your years of experience can be valuable to your employer. And it can potentially earn you a bigger starting salary.

For instance, if you had a career as an editor, you may be an excellent English tutor. You can help students understand the rules of grammar and how to improve their reading and writing skills.

Understand How Working Can Impact Your Social Security Benefits

Working can still be the right choice for you, but make you know how your benefits could be affected. According to the Social Security Administration, while you can work and still receive benefits, there’s a limit to how much you can earn before they begin to reduce your benefits if you’re not yet full retirement age.

In 2023, the limit is $21,240 for those under full retirement age. And it’s $56,520 for the year that you reach full retirement age.

Bottom Line

It’s common for retirees to continue working in retirement. It could be due to financial reasons or just finding ways to keep busy. However, you may not want to stay with the same career track you worked in previously. You may be looking for something less demanding, more flexible or a job you can do from home. But before you decide to work, do your due diligence in finding the right opportunities.

Retirement Tips

  • Consider working with a financial advisor to get the most out of all the benefits the SSA provides. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • The SmartAsset Retirement Guide offers a calculator to show you how much you need to save for retirement. It also has a retirement tax friendliness calculator to help you weigh various options if you are moving after your retirement.

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Source: smartasset.com

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If you’re saving for retirement, a broad market index portfolio is typically a good option. Investing in a target date fund or S&P 500 index fund, for instance, are low-cost ways to gain broad market exposure. However, newly published research indicates there may be a significantly more lucrative way to handle your nest egg.

A financial advisor can help find the right mix of investments for your retirement portfolio. Find a fiduciary advisor today.

An analysis from Dimensional Fund Advisors suggests retirement savers can do better than following the standard advice to use index funds, for instance, to get a balanced portfolio. Portfolios built with a focus on size, value and profitability premiums can generate more assets and better longevity than broad market portfolios, according to the DFA research. In fact, a DFA researcher calculated that a portfolio that emphasizes these premiums would leave a hypothetical investor with at least 20% more money by age 65, even if market returns were less than the historical average.

“These results are encouraging. A portfolio that incorporates controlled, moderate premium exposure can strike a balance between higher expected returns than the market and the cost of slightly higher volatility and moderate tracking error,” DFA’s Mathieu Pellerin wrote in his paper “How Targeting the Size, Value, and Profitability Premiums Can Improve Retirement Outcomes.”

“As a result, targeting these long-term drivers of stock returns is likely to increase assets at the beginning of retirement.”

What Are Size, Value and Profitability Premiums?

As part of its research, DFA compared the simulated performance of a broad market index portfolio – represented by the Center for Research in Security Prices (CRSP) 1-10 index – against that of the Dimensional US Adjusted Market 1 Index.

The DFA index comprises 14% fewer stocks than the CRSP index and places a greater emphasis on size, value and profitability premiums. Here’s how the firm defines each:

  • Size premium: The tendency of small-cap stocks to outperform large-cap stocks
  • Value premium: The tendency of undervalued stocks – those with low price-to-book-value ratios – to outperform
  • Profitability premium: The tendency of companies with relatively high operating profits to outperform those with lower profitability

As a result, the DFA index is more heavily weighted in small-cap and value stocks, as well as companies with higher profits.

Premiums Produce Better Retirement Outcomes

To test the long-term viability of its premium-based portfolio, DFA ran an extensive set of simulations and compared the results against the CRSP market index.

First, Pellerin calculated 40 years’ worth of hypothetical returns for each portfolio, assuming an investor starts saving at age 25 and retires at age 65. Both portfolios are part of a glide path that starts with a 100% equity allocation and beings to transition toward bonds at age 45. By age 65, the investor’s asset allocation eventually reaches a 50/50 split between stocks and bonds.

Then, he calculated how both portfolios would fare during the investor’s decumulation phase. To do this, DFA applied the 4% rule. This rule of thumb stipulates that a retiree with a balanced portfolio can withdraw 4% of their assets in their first year of retirement and adjust withdrawals in subsequent years for inflation, and have enough money for 30 years.

DFA tested the portfolios using both historical returns (8.1% per year) and more conservative returns (5% per year).

When applying the historical rate of return, the portfolio that targets premiums would be worth 22% more than the broad market portfolio by the time the hypothetical investor reaches age 65. In the lower growth environment, the DFA portfolios would still deliver 20% more median assets than its counterpart, according to the research.

The hypothetical investor would also have a lesser chance of running out of money with the DFA portfolio. Using historical returns, the premium-focused portfolio failed just 2.5% of the time over a 30-year retirement. That’s nearly half as many times as the market portfolio, which posted a 4.7% failure rate.

That spread grew even larger when Pellerin ran the simulations with more conservative return expectations. Over the course of a 30-year retirement, the DFA portfolio ran out of money in just 12.9% of simulations when annual returns averaged just 5%, while the market portfolio failed 19.9% of the time.

Bottom Line

Investing in index funds or target date funds that track the broad market can be an effective way to save for retirement, but Dimensional Fund Advisors found that targeting stocks with size, value and profitability premiums can produce better retirement outcomes. When comparing a broad market index to one that focuses on these factors, the latter produced at least 20% more median assets and had lower failure rates.

Retirement Planning Tips

  • How much will you have in savings by the time you retire? SmartAsset’s retirement calculator can help you estimate how much money you could expect to have by retirement age and how much you’ll potentially need to support your lifestyle.
  • Retirement planning can be complicated, but a financial advisor can help you through the process. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Photo credit: ©iStock.com/Tinpixels, ©iStock.com/PeopleImages, ©iStock.com/adamkaz

Patrick Villanova, CEPF®
Patrick Villanova is a writer for SmartAsset, covering a variety of personal finance topics, including retirement and investing. Before joining SmartAsset, Patrick worked as an editor at The Jersey Journal. His work has also appeared on NJ.com and in The Star-Ledger. Patrick is a graduate of the University of New Hampshire, where he studied English and developed his love of writing. In his free time, he enjoys hiking, trying out new recipes in the kitchen and watching his beloved New York sports teams. A New Jersey native, he currently lives in Jersey City.

Source: smartasset.com

Apache is functioning normally

Once upon a time, retirement in America was referred to as “a three-legged stool.” The first leg was your expected Social Security benefits, the second leg was your own personal savings and the third was something old-timers called a pension.

A financial advisor can help you create an income plan for retirement. Find a fiduciary advisor today. 

A pension – also called a “defined benefit plan” – is a payment from a former employer that was (and sometimes still is) offered as a benefit with no contribution from you. The payment amount is based on years of service with that company. Once you’ve worked long enough to become “vested,” your benefit is guaranteed at a certain age and doesn’t end until you die. In many cases, a surviving spouse can receive a reduced benefit.

In 1975, there were 103,346 pension plans in the United States, a number that started to decline in the early 1990s and dwindled to just 46,577 plans by 2020. In many cases, the companies that promised those pensions have been sold, merged or gone out of business. However, many workers who are still entitled to receive those benefits lack any details about their pensions, including how to go about collecting them.

Unclaimed pensions are waiting to be claimed by at least 80,000 people, according to the Pension Benefit Guaranty Corp. (PBGC), the federal agency that oversees retirement security for Americans. In some cases, the people entitled to those pensions don’t even know they’re eligible to receive payments.

Resources For Locating an Unclaimed Pension

If you’re looking for a missing pension – or want to find out if you qualify to receive one, try these resources:

Previous employers. Keep your contact information updated with the benefits administrator at the companies where you worked or their successors.

Legal assistance. The Pension Rights Center is an information resource that also runs Pension Counseling and Information Programs in 31 states. These programs provide free legal assistance for help with pensions, profit-sharing and retirement savings plans.

In states without counseling and information programs, the Pension Rights Center’s Pension Help America offers assistance in finding counseling projects, government agencies and legal service providers.

Meanwhile, the National Pension Lawyer’s Network, an affiliate of the Pension Rights Center, is a free service that can refer you to lawyers who take pension cases, sometimes pro bono.

Employee Benefits Security Administration. The EBSA is part of the U.S. Department of Labor and has free counselors who can answer pension questions. The E-Fast feature on the agency’s website can find pension plan annual reports going back to 2010, which explain how to file a pension claim. The Abandoned Plan Search Tool is also on the agency’s website.

Other resources. Pension Benefit Guaranty Corp. (PBGC) can help with claiming a pension. You can call for assistance toll-free at 800-400-7242.

Meanwhile, the National Association of State Treasurers runs the National Association of Unclaimed Property Administrators, a network of to help locate unclaimed assets. Additionally, the National Registry of Unclaimed Retirement Benefits is run by PenChecks, the largest independent processor of retirement benefit distributions in the U.S.

Bottom Line

As defined-benefit pension plans have been phased out in favor of 401(k) and similar accounts, workers may not know that they qualified for a pension many years ago. In addition, as older companies have been sold, merged or closed pension plans can lose track of vested employees. Even when a company has declared bankruptcy, pension benefits may be protected by the federal Pension Benefit Guarantee Corp. (PBGC)

Tips for Claiming Your Pension

  • There are a number of resources, as listed above, for locating a missing or unclaimed pension. If you think you once qualified for a pension, don’t assume that you’ll be contacted to claim it. Remember, just because you once worked at a company that offered a pension plan you may not have worked there long enough to become vested. In that case, your pension benefits would have been forfeited when you left the company. To see how any pension income might figure in your retirement plans, try SmartAsset’s retirement calculator. This free tool will estimate how much you’ll have when the time comes to retire.
  • In most cases, an old pension likely won’t pay enough benefits to live on. You’ll still need to figure out when and how to claim your Social Security benefits and maintain your own savings to support yourself in retirement. A financial advisor can help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you.

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Source: smartasset.com

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As unemployment numbers continue to rise, many employees are stressed about whether they’ll have a job next week or not.  Some have already, some have already lost their jobs and are scrambling to find new employment.   In this time financial planning is crucial.  This is a time when people are feeling and are desperately in need of guidance.  If you think that you are about to encounter a layoff,  you need to be focusing your attention on what can be controlled:  cutting expenditures, figuring out emergency funds, evaluating how to replace lost benefits, and making a game plan for the job search.

1. Save Emergency Cash

For those that are still employed but the future of their job is uncertain, I would encourage them to have at least 12 months of savings in cash.  Unfortunately many will not have enough.  But if they’re still employed and the emergency funds are not there, tapping into their 401(k) might be a viable option.  I know what you’re thinking.  Tapping into your 401k usually goes against all that I stand for.  And with this dismal market,  it might be a dangerous move, but;  if they become unemployed that option might now be available to them.

Typically if you’re still employed you’re allowed borrow up to half of your 401(k) balance, up to a maximum of $50,000.  Running these numbers you can guesstimate the period of how long you think it will take you to find a new job and then how much you would need to borrow to get you by until the new job is made.  If you borrow from your 401k while you are still employed then you avoid the 10% withdrawal penalty.  Sure there is some speculation in this move, but if you’re in a high demand field you may be able to use this move to your advantage.

Warning: If you do this, be sure to double check with your employer when you are due to pay it back.  It tends to vary from employer, but it could be due back immediately, within 60 days or some period greater.

2. Don’t Pay Off Debt

Another common misconception of after being laid-off is that most people want to take their savings or take their retirement savings and pay off debt, such as credit cards or even the 401(k) debt.  But in this type of market, paying off debt should not be the priority especially if you are unemployed.  The priority is to keep get your savings intact and making sure that you have plenty of cash on hand.  Sure credit card debt is bad, but just focus on making the minimum payment until you get your job situation in check.

3. Focus On Crisis Budgeting

If you’re used to going to shopping every weekend or eating out every other night at fancy restaurants, then most likely those changes are just around the corner. You need to sit down and seriously hammer out a budget of things that you need and things that you don’t need.

You may even consider working out two budgets, one for while you’re working and one for when you’re not working, so that way you can truly see how much you’re spending per month. And then, you can contemplate whether you can go on a cheaper cell phone plan, or cut your cable bill services. Sometimes adding that extra payment per month might not seem like a big deal, but $50 here and $50 there will surely add up, especially on a limited budget. Also, too, knowing which expenses you absolutely must be covered will help you realistically search for your future job.

4. Replace Lost Benefits

In the aftermath of a job loss, people should take stock of what benefits have been lost, which ones you are entitled to by law, and which ones may be portable.  how to continue health care coverage, especially if there are dependents.

Typically, employees are eligible to keep the same coverage through COBRA for at least 18 months. But, they may have to pay 102% of the cost of their insurance premium. If there premium have been subsidized by their employer, then that cost will be a rude shock.  COBRA can often be a good bridge choice, but it ends up being a health benefit. Families paying $200 a month for insurance under COBRA, it could be $1,000.  Luckily, the government just passed new law concerning COBRA benefits that qualifying period will be only responsible to pay for 35% of the benefit.  This comes at a time that should be very helpful to many that are facing layoffs ahead.

Many employers offer life insurance, long-term care insurance, disability policies and they may be portable as well. For another person or one who is not in good health, ability to take over the payments on existing $100,000 life insurance policy may save the worry of having to find another carrier. It’s better to keep it for a few months, although make sure they don’t need it, and drop it later.

5. Consider a Career Transition

Many people will be forced by an unforeseen job layoff to reassess what they want in their lives and what is meaningful to them. They may have to craft resumes, cover letters for the first time in years, and feel at a loss especially if they are switching to a new career path, which is an unfamiliar field.

If you haven’t jumped on the social media bandwagon, it’s time.  Consider Facebook, LinkedIn, Twitter and other social media sites to reconnect with old networks and also create new ones.  The more people that know your situation the better.   Also, consider starting a blog to showcase your talents. Need a good blog for inspiration?  Guess what, you’re already here.

by Steve Rhodes

Source: goodfinancialcents.com

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What is a vesting schedule?

A vesting schedule is a way for your employer to give you some incentive to stay with them.

To be 100% vested means to be able to take all of your retirement benefits with you if you leave or have been fired.

Depending on what type of plan you have- pension or 401k- will determine your vesting schedule.

Let me make something clear.  What you contribute is always yours.  The vesting schedule pertains to what your employer contributes e.g.; the 401k match.   Here’s a look at the two different vesting schedules:

Defined Benefit (Pension) Plan

Pension plans are a dying breed but some people still have them.  Defined benefit plan must vest at least rapidly as one of the following two schedules, assuming the plan is not top-heavy. Top-heavy has to do with making sure that each employee receives a fair share of retirement benefit as it relates to their salary.

  1. Five-year cliff vesting, no vesting is required before five years of service.  100% vesting is required at five years of service.  Referred to as a five-year cliff.
  2. Three to seven-year graduated or graded vesting.  The plan must provide vesting that is at least as fast as the following schedule:
Years of service Vested Percentage

3 20%

4 40%

5 60%

6 80%

7 100%

So in the example above, if the employer uses the graded vesting schedule and you have been employed for 5 years, then you’ll be able to take 60% of the employer’s benefit with you.

At my previous firm, I was offered a small retention package to stay (not nearly what the boys at Merrill got) and it had a 7 year vest attached to it.  Needless to say, I gave it up and started my own firm.

401k Vesting Schedules

Defined contribution plans must vest at least as rapidly as one of the following two schedules  for all employers non-elected contributions and matching contributions:

  1. Three-year cliff vesting.  No vesting is required before three years of service, 100% vesting is required upon the completion of three years of service.
  2. Two to six-year graduated or graded vesting.

The plan must provide vesting at least as fast as the following schedule.  Note: These are the same vesting schedules used to top-heavy defined benefit plan.

Years of service Vested Percentage

2 20%

3 40%

4 60%

5 80%

6 100%

The employer may choose a vesting schedule that is more favorable to the employee, but not less favorable than the cliff.

Example: ABC Company offers a 401(k) plan that has an employer match.  The company has the following vesting schedule with respect to matching contributions: 25% vested after one year, 50% vested after two years, and 100% vested after three years.

Although the vesting schedule does not exactly match the vesting schedules posted above, it is acceptable because it’s more favorable to the employees than the vesting schedule listed above.

All years of service must be counted with few exceptions.   Two of the more common exceptions are:

  1. Years prior to the implementation of the plan.
  2. Years prior to the age 18.

Both years prior to the implementation of the plan and years prior to age 18 may be considered at the choice of the employer, but it must be in the plan documents.

Employer contributions are 100% vested when:

  • Plan termination.  Benefits become 100% vested in the event of a plan termination.
  • SEP, SARSEP, and SIMPLE IRA’s. All contributions to these are fully vested.
  • Attainment of normal retirement age. In the event of an employee attaining normal retirement
  • Under a 401(k) plan, elected deferrals, qualified non-elected contributions, and qualified matching contributions are 100% vested at all times.
  • Safe Harbor contribution is to a Safe Harbor 401(k) plan.
  • Plan requires two years of service for eligibility.

It’s very important to understand your vesting schedules when you start with a new employer.  That could make the difference of walking with a good chunk towards your nest egg or walking away with nothing.  Be sure to check your benefits manual and ask your human resources department the right questions.

Source: goodfinancialcents.com