According to survey data from the Plan Sponsor Council of America (PSCA), roughly 40% of 401(k) plan sponsors provide immediate vesting on their matching contributions. In theory, employers that offer immediate vesting on matching 401(k) contributions might have a leg up on other companies when recruiting workers in a tight labor market. However, the jury is still out.

Forfeitures and vesting schedules

Many employers tend to use a vesting schedule so that when plan participants leave the company prior to vesting (or fully vesting), the net savings from the forfeited matching contributions can help subsidize plan costs. This benefits the remaining plan participants.

Some employers use vesting schedules hoping that forfeiting unvested matching contributions will discourage job-hopping. Still other employers find that younger employees tend to change jobs often and are not terribly focused on retirement savings, so they will not give much weight to a prospective employer’s 401(k) vesting schedule (or lack of one) when considering accepting a job offer.

What about employers with recruiting strategies involving workers of all age brackets? A significant proportion of targeted recruits may look favorably on immediate vesting. Seasoned labor force participants might be drawn to a company whose compensation philosophy prioritizes facilitating employee retirement savings.

A look at the stats

In January 2019, MetLife shifted from using a graded vesting schedule to immediate vesting. MetLife sees this move as an investment in its people. It believes immediate vesting will help lure employees who are not new to the workforce and perhaps have already become fully vested in the plans where they are presently employed.

Greenheck Fan Corporation made a similar move in hopes of giving itself a competitive advantage in recruiting production workers. The company’s 401(k) plan was ranked above paid time off as the “most popular benefit” in a payscale.com employee survey.

PSCA data indicates that the percentage of sponsors with immediate vesting of matching contributions has remained essentially level over the past ten years. Why? Possibly because the pros and cons of immediate vesting have not changed much over the years and how they are weighted depends on each employer’s compensation philosophy, profitability and competitive position in labor markets.

Time for a change?

Many plans have adopted safe harbor provisions which automatically result in immediate vesting. Candidates you are trying to recruit may have already experienced immediate vesting in their former employer’s safe harbor plan. The bottom line: Plan sponsors should weigh how requiring a vesting period for matching contributions (and what kind of vesting schedule) impacts their recruiting and retention strategies. Also remember that vesting schedules for matching contributions are strictly optional.

For more information, contact Stephanie Zaleski at [email protected] or 312.670.7444.  Visit ORBA.com to learn more about our Employee Benefit Plans Services.