Question

Isaiah has been working for CNN for a total of four years. CNN offers Isaiah a 401(k) plan. At the end of the fourth year of working at CNN, Isaiah leaves and begins working for MSNBC – which also offers a 401(k) plan.

When Isaiah leaves CNN, his 401(k)-account balance is $54,000, of which:

• CNN’s contribution = $30,000
• Isaiah’s contribution = $20,000
• Interest earnings = $4,000.

2. If CNN uses a three-year cliff vesting schedule, how much of the 401(k)-account balance can Isaiah take with him in total? (2 points)

Answer 1

Vesting schedules

Employee vesting ranges from 0 to 100% depending on the length of service. If you are 0% vested, it means you are entitled to withdraw only those funds you contributed. If you are 100% vested, you own 100% of the funds in your account, including any employer contributions or interest that you have earned.

-One common vesting schedule format is cliff vesting. You must complete multiple years of service when you are 0% vested. After the allotted time has elapsed, the vesting percentage automatically jumps to 100%.

-In the given case isaiah has been working for 4 years but the cliff vesting schedule is only 3 year. it means after 3 yaer of services the vesting percenage will be 100% of the funds available.

-When Isaiah leaves CNN, his 401(k)-account balance is $54,000, of which:

• CNN’s contribution = $30,000
• Isaiah’s contribution = $20,000
• Interest earnings = $4,000.

- As the period of service is more than the cliff vesting period , hence Isaiah can take 100% of the funds available in 401(k) account i.e. $54000.