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My friend recently started a position at a high tech manufacturing company. The company offers full vesting of the retirement fund after just 2 years of working with the company. The standard is around 4 to 5 years to create an incentive for the employees to stay with the company longer.

We were brainstorming the reasons why they would do this, but could not think of any good reasons. What are the possible motivations for lowering the time to leave the company with 100% of the 401k fund?

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    This is something only that company knows, possibly to sound more appealing to their workers. It could also be their salaries are somehow below average so they can compensate with earlier retirement. – DarkCygnus Aug 23 '17 at 4:54
  • My company has a very good 401k policy. We are 100% vested immediately upon hiring. So it depends on each company's policies. – John K. Aug 23 '17 at 13:12
  • Wow was it a tech company? – The_MN_MechE Aug 23 '17 at 15:12
  • Another reason--I have heard that companies could just keep the non-vested money previously, but now have to distribute the money to others in the 401k. That's happened the last...2 or 3 years at my company, so that's one less incentive to have a long vesting period. – mkennedy Aug 23 '17 at 20:15
  • Never thought of that! Nice one. – The_MN_MechE Aug 23 '17 at 20:27
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The company has a number of motivations behind these "employee friendly" policies:

  1. Attracting talented workers: The company is in competition with other companies to attract good workers. By offering employee friendly policies, the company hopes that highly talented workers would want to work for them.

  2. Increase profits by boosting employee morale: Employee friendly policies boost employee morale. Happy employees tend to be more productive and dedicated to their jobs, which increases the company's profits.

  3. Reducing employee turnover and associated costs: Closely related to point 1, employees tend to leave companies having unfriendly policies. Employee turnover costs the company by way of exit procedures, posting job advertisements, recruiter fees, setting up interviews, onboarding procedures, training the new recruits to bring them up to speed, etc.

About your specific example of early vesting of retirement funds, the reason is somewhat counter-intuitive. Employees tend to resent employers who make it difficult to leave and usually take an earlier opportunity to leave, whereas they feel "empowered" if the employer doesn't put hurdles in their path, and stick around longer.

In summary, every so-called employee friendly policy is actually employer friendly. Companies are out there to do business, business takes precedence over everything else. "Employee friendly" policies are just yet another business tactic.

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  • Great breakdown! – The_MN_MechE Aug 23 '17 at 14:15
  • I disagree with point 3- once I am employed, I have an incentive to stay to the end of the vesting period. Once I reach the end of the vesting period, I don't consider it at all. Vesting periods increase retention of the employees you already have. – MackM Aug 24 '17 at 2:07
  • @MackM Right, but those 3 bulleted points refer generally to all "employee friendly" policies, not the early vesting of retirement funds in particular. Besides, if I am 2 years into an "unfriendly" job, and a much better offer comes along, I would rather let go of that measly retirement fund than wait another 3 years. – Masked Man Aug 24 '17 at 2:43
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What are possible motivations for lowering the potential timeline to leave the company with 100% of the 401k fund?

These vesting periods for 401 K's are designed to save the company money ( should you leave early they don't pay out the match ) and at the same time have a bit of a retention value too ( My 401 K vests in 3 years, so I will stick around at least that long ).

The only reason that your company would lower the vesting period is due to competition for talent. I guarantee you they did not do that for the good of the employees.

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  • Can't deny the competition aspect! – The_MN_MechE Aug 23 '17 at 14:14

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