Can someone explain this to me?

[Guest DenL]

I just started a new job with a company paid retirement plan. After six months company pays 12% of annual salary into retirement plan. Fullly vested after five years. I didn't want to ask the HR person cuz I didn't want to look like an idiot. If someone could explain to me how this works or direct me to an explanation I would greatly appreciate it.

Thanks in advance.

[QDROphile]

You should get a document called a "summary plan description" that explains your benefits in some detail, but with understandable terms. Ask for it if you don't have it already.

[Tom Poje]

what QDROPhile said was true, you should have been provided a SPD that usually explains fairly clear. If the plan is typical the following takes place - every year you work 1000 hours you receive 1 year of vesting service. You indicated you are fully vested after 5 years. probably means you are 0 vested until that point in time.

you also indicated the company puts in a generous 12% of pay.

lets say you make 20,000 for 5 straight years, and work 1000 hours each year.

then year 1 company puts in 2400 in your name.

after 5 years you would have 2400 * 5 = 12,000 plus any gains / losses.

the longer you work, the more money they keep putting in.

If you were to quit after 4 years you would get nothing extra because you are not 'fully vested'.

(I am guessing on the vesting - they could very well have a vesting that says after 1 year you are 20%, 2 years 40%, etc - in that case after 4 years you would receive 80% of your balance.)

Every year they will provide you with a statement indicating how much they put in for you, and how much gains you received.

[david rigby]

Comments from Q and Tom are good. But two points:

- you don't have to receive the SPD just because you were employed, but must receive it when you become a participant, which is based on the terms of the plan;

- Tom's answer is an attempt to explain how a defined contribution (DC) plan works, but it has not been established that this is a DC plan. Check the SPD. (There might be 2 plans, not one, in which case there should be 2 SPDs.)