Why Is My Vested Balance Lower Than My Total Balance?
Clarify the difference between your retirement account's total and vested balances. Understand why employer contributions may not be fully yours yet.
When reviewing your retirement savings, you might notice a difference between your “total account balance” and your “vested balance.” This common discrepancy can be confusing, as it appears some of your hard-earned savings are not fully accessible. This article clarifies the distinct meanings of these balances and explains why they differ.
Understanding Vested and Total Balances
Your total account balance in a retirement plan, such as a 401(k), represents the sum of all money deposited into your account, including your personal contributions and any employer contributions. This figure provides a complete picture of the funds held within the account.
Your vested balance signifies the portion of your total account balance that you legally own and can take with you if your employment ends. Funds you contribute from your salary are always 100% immediately vested.
The difference between your total and vested balance primarily stems from employer contributions, such as matching funds or profit-sharing contributions. Employer contributions often come with specific conditions that determine when you gain full ownership. If your vested balance is less than your total balance, it indicates you have not yet met the requirements to fully own all employer-provided funds.
How Vesting Schedules Work
Vesting schedules are the primary mechanism by which employer contributions become your property over time. These schedules are designed to encourage employee retention; if an employee leaves before becoming fully vested, the unvested portion of employer contributions is typically forfeited back to the plan.
Two common types of vesting schedules are cliff vesting and graded vesting. Under a cliff vesting schedule, employees become 100% vested in employer contributions all at once after completing a specific period of service. For instance, a common cliff vesting period is three years, meaning you own 0% of employer contributions before that point, but 100% once you reach the three-year mark. Federal regulations generally cap the maximum at three years.
Graded vesting allows employees to gain ownership of employer contributions gradually over time, with a percentage becoming vested each year. A typical graded vesting schedule might see an employee become 20% vested after two years of service, with an additional 20% vesting each subsequent year until 100% ownership is achieved after six years. Federal law states that graded vesting schedules for retirement plans cannot extend beyond six years.
Locating Your Plan’s Vesting Information
To understand your specific vesting status, consult your plan’s official documents. The most comprehensive source of this information is generally the Summary Plan Description (SPD). This document, required by the Employee Retirement Income Security Act (ERISA), provides a detailed guide to your benefits plan in plain language, including eligibility criteria, how benefits are calculated, and the vesting schedule. Your employer is legally required to provide you with an SPD within 120 days of your entry into the plan, and you can request a copy if you don’t have one.
Many retirement plan administrators offer online portals or websites where you can access your account details and plan documents. You should look for a section labeled “vesting” or links to plan documents like the SPD or “Adoption Agreement,” which outlines vesting rules. These online resources often provide your current vested percentage, allowing you to track your progress.
If you have difficulty locating your SPD or understanding its contents, your employer’s Human Resources (HR) or benefits department is a valuable resource. They can provide clarification on your plan’s specific vesting schedule, help you access the necessary documents, or explain your current vested balance.