If you have a 401(K) through work that your employer also contributes to, do you (can you) take it with you when you leave the company? Does it matter how much you contribute versus how much your employer contributes?
Here’s the situation: The company is giving each employee profit-sharing. From what I understand, it is $1000/each; however, the employer is deciding how much is paid out and how much goes into a 401(K) account. So employee 1 might receive $1000 in their paycheck (and nothing in the 401(K)) and employee 2 might receive $200 in their paycheck (and $800 in the 401(K)). If employee 2 leaves the company, does he lose the rest of the profit-sharing? Does it matter that employee 1 received the entire amount?
Also, let’s say a company pays bonuses seasonally. Payroll makes a mistake and pays a little more than double what the first bonus was supposed to be. Rather than pay the second bonus, the company waits until the after the second bonus should have paid and says, “Well, we over-paid you the first time, so we’re offsetting the amount. You still owe X dollars which we need to make arrangements to keep out of your regular paycheck.” Is this common practice?
Generally, company contributions to a 401K plan are “vested”, which means the employee “earns” their share of the company contributions through longevity. As an example, lets say you get the $1000 in your 401K. Typically, after one year you are entitled to 25% of that company gift, or $250 (plus interest earned). After 2 years, 50%, etc.
This has happened to me, and this is how it was handled. The employee still comes out ahead, due to the time value of money.
I am an HR systems and benefits consultant. Some of your questions are rather large but I will see what I can do.
Whatever money you put into your 401K account is yours and you can take it with you wherever you go. You can also leave it at the existing company for them to manage for as long as you want but it is always yours and can never be taken away. Converting an old 401K to a new one is called “rolling it over” and it is really just a money transfer that you have to initiate through a simple administrative process.
Money that the company puts into your account is subject to their own “vesting rules”. They may say that they will match your contributions dollar for dollar but you have to stay with the company a certain amount of time to actually keep the money. This is a retention incentive plan to encourage employees to stick with the company. The company’s vesting policy could really be anything but it should be written down and available to anyone who is interested. HR would always be able to tell someone that.
Payroll screw-ups happen and you don’t automatically get to keep the money just because there was a mistake. Payroll usually just comes up with a payback plan that seems fair and it could be anything. A good portion of the time, the company just eats the money if the person has already left the company.
Now, bonuses should be a part of just regular pay and actually the employee’s money so I don’t think that would be subject to any vesting rules under most circumstances. It is kust a way to easily save for retirement while avoiding income taxes at the same time.
Just to note, if your balance is less than $5,000, the company can require you to take the money out - either by moving it to your new 401K or to your own IRA. Recent changes in the law also allow them to open an IRA in your name and force the money into it, whether you want to put it there or not (assuming the balance is less than $5K).
If you have more than $5K, you can leave it in the plan for however long you want. If the plan never terminates, you can leave it there forever.
I will say, as a plan administrator, it’s a big giant pain the ass to deal with people who are no longer employees but who left money in the plan. Just take it out, within a reasonable amount of time, when you change jobs.