What happens to the money a business contributes for an employee once He/She leaves?
Ownership rights of the monies within a qualified plan for an employee are governed by the vesting schedule. This schedule states what percentage of the accrued benefit or account balance the employee owns based on the number of years of service with the business, or since the plan started. The law allows a maximum of seven years before an employee is entitled to 100% vesting, or six if the plan is “Top Heavy” (based on legal definition). Depending on the type of plan adopted, the non-vested portion of the employee’s account may be used to reduce future contributions or redistributed to remaining participants. If redistribution applies, the business owner will often receive a substantial portion of the “forfeitures” over a long period of time.
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- What happens to the money a business contributes for an employee once He/She leaves?
