Question

5. Jacques works for Hiral Industries, which sponsors a 401(k) plan with a 50% match and a 2 to 6 graded vesting schedule. Jacques defers $30,000 over the last three years and has received $15,000 in matching contributions over that same time. If he leaves today after three years with Hiral, and the balance in the account is $60,000, then he will forfeit $12,000 of the match and associated earnings. Ca. True b. False.

Why is the statement correct?

Thank You!

Answer 1

The above statement is true because:

in 2 to 6 graded vesting A participant is vested 20% after 2-years, 40% after 3-years, 60% after 4-years ,80% after 5-years and 100% after 6-years.

Vesting means how much of amount will an employee get from the employer contribution to his plan after completion of specified years of service.

in the question the employee jacques had worked for hiral industries for more than 3 years at the time of leaving so he is eligible to get only 40% of employer matching amount (As per 2 to 6 graded vesting as mentioned above).

in the question at the time of leaving he had accumulated $ 60000 in his plan which means that his own contributions are of $ 40000 and employer matching are $ 20000 (As 50% is matching).

so jacques will receive only 40% of employer matching amount which is as follows:

$ 20000 * 40% = $ 8000

and the remaining amount will be forfeited as follows:

$ 20000 - $ 8000 = $ 12000