Account Managing Question

Hi, Brandon,

Another question for you regarding account transfer, say a scenario like an employee resigned from a company, but has been contributing to his 401k and pension plan with a matching contribution from the company. However, that same (ex-) employee has not done anything about it. Many years afterwards, that same (ex-) employee decided to rollover what he contributed into that 401k/pension balance to another financial institution, but realized the account was terminated by the company barely 2 years prior to his request of rollover and the account was emptied out. There was no trace of documentations of transfer out from the custodian institution. I thought mostly if ex-employees not dealing anything with their 401k/pension plans after they leave, the custodian institution only park the balance to a fixed account such as a money market saving account due to no actions. Is this legally possible to happen? Where will the contribution go in this case?

Hi @A11!

Good question. While it’s unlikely you see a question on the exam about this exact topic, there are several components that exist in this scenario that could be tested.

First thing to be aware of are vesting periods. 401(k)s and pension plans are qualified plans that are governed and regulated by the Employee Retirement Income Security Act (ERISA). One of the requirements ERISA imposes on qualified plans is for the employer to offer a “reasonable” vesting period for employees to earn their benefits. This relates to the matching component; the amount of money an employer matches in qualified plans are not typically considered property of the employee immediately. Most vesting periods look something like this:

  • After 1 year of service = 20%
  • After 2 years of service = 40%
  • After 3 years of service = 60%
  • After 4 years of service = 80%
  • After 5 years of service = 100%

Most vesting periods take place over a 5 year period, which is what ERISA considers a “reasonable” amount of time. Keep in mind this does not apply to the employee’s contributions. Those are always property of the employee. The employer match is subject to the vesting period. Let’s assume in your example the employee quits the old company after 2 years of service. With 40% vested, that means the employee keeps 40% of the company match, while the other 60% goes back to the company.

The 40% match plus the employee’s contributions will stay in the 401(k) for the time being. Employers detail these scenarios in their plan documents, which must be made available to all employees. In my experience, most employers do something like this:

  • For balances below $25,000 → Taxable distribution made to ex-employee if not rolled over within 3 months of termination
  • For balances $25,000 and above → Account sits in place until instruction from the employee

These are the two typical outcomes for a 401(k) plan left behind. The ex-employee will either receive a check (taxable distribution), or the money will stay invested in the plan until further notice from the ex-employee. In most cases, the investments are typically not switched once the employee leaves. If they were invested in a money market fund, it will stay that way. If they were invested in a growth fund, it will stay that way.

Does this answer your question?


wow, that makes total sense. That could well be an ex-employee sat long enough to pass that 3 months if the balance is below $25,000. When the ex-employee tracked the $$ back, it’s too late to retrieve. I have never thought about that. Great learning, thanks.

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Sure thing! To clarify, the $25,000 is a number I made up. At my former employer, I think the amount was $10,000. Either way, I’d assume the check could be re-issued if it was lost in the mail.


This situation did actually happen to me - a previous employer closed the plan several years after I had worked there. IIRC I had about $7k in the account and the plan administrator sent me an email offering the choice of a distribution or rolling it into a different plan.

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well, it’s so easy to miss out if anyone not reading the fine print. Suck to lose money that way. Just saying it.