Part of 401K plan distribution forfeited

[diamond20]

What is the name of your state (only U.S. law)? PA

I have worked for my past employer for about 2.5 years and had a 401K plan with them since my start date. Now I work for a different employer and wanted to rollover the money from my previous 401K plan to my new plan. I filled out an application and they sent me a check written to my new plan in my benefit. I've noticed that the total sum is significantly less than I had on my previous 401K, so I contacted them to see what was the problem.

I was told that the reason for the difference relates to vesting of the monies that the Firm put into the profit sharing account for me and that I was 80% vested in these monies, and, upon distribution 20% of the monies were forfeited. In order to achieve 100% vested in the monies I would have had to have worked for the firm for an additional year.

Can someone tell me if that's normal or legal? And is there anything I can do?

 

[Ozark_Sophist]

Normal and legal.

80% vested after 2.5 years is a good deal.

 

[diamond20]

Could you please tell me a bit more about how does that work? Why didn't they notified me? Is it like a penalty?

 

[cbg]

The money that you yourself put into the plan is always 100% vested.

However, money that is put in on your behalf generally vests gradually. I've never heard of a plan that didn't vest the matching portion over a period of time; it is both normal and legal.

It's often 20% per year which would mean you wouldn't be 80% vested until 4 years - if you're 80% vested after only two and a half years you're coming out of this deal very well.

They probably did notify you - I"m sure it's in the plan document somewhere. They are not required to point it out to you; this is such a common procedure it probably never occurred to them that you were not aware of it.