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'm beginning work at a firm with an incrementally vested retirement pension plan that is incrementally vested for 20% for each of the first five years. After five years, I'm 100% vested. What does this mean for my pension if I leave the firm after 3 years?
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Incrementally vesting your retirement plan is basically a hedge for your employer to encourage you to stay on with them longer. Every year, your employer adds (for example) $5k to your retirement plan on your behalf. For every year you stay there, you "earn" an extra 20% of the total amount.Originally posted by pythonscript View Post
So after 3 years, you might have $15k in your retirement plan, but you're only entitled to take 60% of it (3 years x 20% per year) with you to your next job. So in that example, you would have $9k available that you could roll over into your next job's retirement plan.
But if you were to stay for 5 years or longer, you would have full ownership of that money... If you left your job after 5 years, you'd have $25k in the retirement plan, and would be able to take all of it with you to your next job.
Hopefully that makes sense for you. -
Thannks for the information. I'll can talk to my employer more about this specifically too, since I'm not entirely sure how this would work with a pension. According to my employer, the full pension is 50% of the salary once it's fully vested. When combined with incremental vesting, does that mean that after 3 years, I might have 60% of 50% of my salary as a retirement pension? Since this isn't a 401K / IRA account, but rather just a pension, I wasn't sure how that worked.Comment
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Usually you hear about this "partially vested" in regards to the company match on the 401k. I've never heard of it applying to a pension, but I guess it just works the same way. Most pension plans you accrue benefits but don't vest until the 5 year mark anyway. If you leave after 4 years, you get 0% of the benefits; after 5, 100%. So, in some ways, your plan is actually better.Comment
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I very highly doubt that is correct. If it is, let me know where you work! Usually it takes around 25-30 years of service to replace ~50-60% of your salary. I suspect that you are mixing 2 things:Originally posted by pythonscript View Post
1. Incremental investing means you only get 20% of your potential pension benefits (based on years of service) until you hit year 5. After year 5, you get 100% of your potential benefits (based on years of service).
2. After 25-30 years of service, the pension fund will pay 50% of your last year's salary (or average of last 3 years).Comment
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I agree with humandraydel that you are likely combining two different things.Originally posted by pythonscript View Post
1) Full pension payout will ultimately reach 50% of salary.
2) You are on a partial vesting schedule, of such benefits you have so far accrued.
Most pensions do something like 1-3% per year of service. (For examples: CSRS Computation Service Retirement | Benefits | NYS Teachers' Retirement System )
So if your pension is 2%/year of service, then after say 3 years, you may have built up 6% pension. But if you are only partially vested, you may only get like 60% of that 6% (or the equivalent lump sum payout option).
In my 2% example, using the max vesting schedule, you would reach 100% vesting after 7 years -- at that time, you will have built up 14% salary replacement (or the equivalent lump sum payout). In order to achieve full pension benefit, you would need to work there at least 25 years.
For more info see: What You Should Know About Your Retirement PlanComment
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