The most stringent vesting schedule an employer may choose includes employer matching contributions with a three-year 100 percent cliff vesting schedule, or a six-year graded vesting schedule. A five-year 100 percent cliff vesting or seven-year graded vesting schedule may apply for other employer contributions. Keep in mind, the employer may choose a more liberal vesting schedule, if they so desire, by writing other formulas in the plan document, but at any level, it may not exceed the most stringent vesting schedule mentioned.

Employee contributions are always vested 100 percent immediately. In addition, if the employer sets up a Safe Harbor, the Safe Harbor employer contributions must be vested 100 percent immediately. SIMPLE 401(k) employer contributions must also be immediately 100 percent vested. In a plan with immediate vesting, employer contributions are fully vested as soon as they are applied to a participant's account.

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