Summary Plan Description (SPD) Part I Vesting

Last week, I touched on different documents that you will want to retain as a plan participant.  A document of particular importance is the Summary Plan Description (SPD).  An SPD is a summary of the plan document written for a layperson to understand.   From my first post about participant statements, you may have noticed an item called vested percentage and/or amount on your statement.  Vested means the portion of your benefit that you have already earned.  Any unvested benefits will not be yours and are considered forfeited or given up when you separate from service.

Any employee contributions you make to your retirement plan are 100% vested.  Based on the type of plan you are in these contributions include:  401(k), 403(b), Roth, Rollover, Voluntary, and Mandatory.  Other names are also used, but the general rule is if you elect your own money to go into the plan, it cannot be forfeited.  Employer contributions can be 100% vested but are typically subject to vesting schedules.  The type of employer contribution is important because different types are subject to different vesting schedules.  This is where your SPD comes in to play.

Are you in a retirement plan that has employer match contributions and employer profit sharing contributions?  You will want to look under vesting in the SPD for the appropriate schedules.  Generally, you will see a table with the number of years of service you need to reach different percentages.  For example, you may be 0% at one and two years of service for profit sharing contributions.  In year three, you become 100% vested.  You will want to check your participant statements to see if they match the service you have earned.  Once you have earned vesting, it cannot be taken away from you.

The SPD should explain how vesting service is calculated.  Some plans are written to only count plan years employed.  More often plan documents are written to calculate based on having worked a certain number of hours.  Most often the requirement is 1000 hours in one year.   However, sometimes a document does not require as high a threshold of 1000 hours and chooses something like 900 hours in one year.  Other provisions to be aware of are restrictions on service you earned prior to establishment of the plan or a certain age.  If those provisions apply, they should be disclosed in the SPD.

Other factors such as amendments to the vesting schedule, lapses in service, grandfathered service, and changes in plan years also affect service.  If you see that your vested percentage is different than what you feel it should be, consult the contact for the plan.  Often times, your participant statement will have a phone number to call.  Some of the other factors mentioned briefly above may explain these differences, and your plan administrator should be happy to provide an explanation.  If there is an error, they should fix the percentage.

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