Under ERISA, an employee's own salary-deferral contributions to a 401(k) plan must vest:
Explanation
ERISA §203 (29 U.S.C. §1053) and IRC §411 require that an employee's own elective salary-deferral contributions to a qualified plan be 100% vested immediately — the employee always owns 100% of what they contributed from their own paycheck. Only EMPLOYER matching or profit-sharing contributions may be subject to a vesting schedule (3-year cliff or 2-to-6-year graded vesting under §411(a)(2)). Option A (3-year cliff) and Option B (6-year graded) describe permissible EMPLOYER-contribution vesting schedules. Option C — 5 years is not a standard schedule under current law (the 5-year cliff was raised to 3-year cliff for matching contributions by PPA 2006). The principle: 'your money vests instantly; your employer's match may take time.'
Law Reference: 29 U.S.C. §1053 (ERISA §203)Practice all 315 questions free — no signup required.
Related questions on this topic
- If the owner of a deferred annuity dies during the accumulation phase, before annuitization begins, who normally receives the contract's remaining value?
- An employee with group life coverage dies 10 days after leaving the job, having not yet applied for conversion. What is the insurer's obligation?
- Which statement BEST describes the difference between a 401(k) plan and a 403(b) plan?
- During the ACCUMULATION phase of a deferred annuity, which of the following best describes the contract's status?
- California regulates the surrender-charge schedule on individual deferred annuities sold to seniors. Which statement is correct about a typical compliant surrender-charge schedule?
- A California employee with $80,000 of group term life coverage is terminated. Under the standard group conversion right, the converted INDIVIDUAL policy:
Last reviewed: · editorial process