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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76397  
Subject: Re: 401(k) Date: 3/3/2000 3:26 PM
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Greetings, dozer183e, and welcome. You wrote:

<<My Company currenlty has a 401(k) plan. It is just a straight plan with no matching. My boss recently asked my if there is anything I would like to see changed in it. Of course, I told him I would like some form of employer matching benefit. I noticed a bit of reluctance on his part. I think I convinced him of the long term benefits for himself as well as the employees. One problem the company has had is a high turnaover rate. We are a small company (10-12 people) and it really hurts when people leave after only 2-3 years. I explained how vesting after 5 years will probably keep people around longer.

What else should I tell him? What vesting schedule is best? >>


What's more expensive to him as the owner, losing employees after a year or two or making a matching contribution? The latter are not cheap for a small employer to make, which is why many do not.

As to a vesting schedule, there are basically two schedules an employer may use. In cliff vesting, the matching contribution does not become vested at all until the employee enters the fifth year of service, then it is 100% vested. Alternatively, the employer may use seven-year vesting in which the matching contribution does not vest for the first two years, but the employee then vests at 20% in the third year, 40% in the fourth year, 60% in the fifth year, 80% in the sixth year, and 100% vesting in the seventh year. The employer may choose a faster vesting schedule if desired.

Regards..Pixy
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