What does a 2-5 year graduated vesting plan allow an employee to do after leaving the job in year 3?

A 2-5 year graduated vesting plan is designed to establish a schedule that outlines how employees gain ownership of employer contributions to their retirement benefits over a set period. In this type of plan, the employee typically earns a percentage of the employer's contributions each year until they are fully vested.

After three years in a 2-5 graduated vesting plan, the employee has completed a portion of the vesting schedule and has earned the right to a certain percentage of the employer contributions. Based on the typical structure of graduated vesting, employees are not fully vested until they have completed the entire vesting period, which in this case extends to five years.

When an employee leaves after three years, they can take a portion of those employer contributions with them, which is determined by the vesting schedule. Assuming that the structure of the plan allows them to have a specific percentage vested by year three, it is correct that they could take a certain percentage of the employer contributions along with any accrued earnings tied to those contributions.

This means that the employee would retain 40% of the employer contributions and any related earnings, reflecting their earned rights to the benefits accumulated up to that point. The percentage reflects what they have earned rather than a forfeiture or retention