What percentage of Tom's qualified retirement plan funds would be forfeited if he terminates his employment now?

What percentage of Tom's qualified retirement plan funds would be forfeited if he terminates his employment now?

• A. 10%
• B. 20%
• C. 30%
• D. 40%

Answer: (B)

To determine the percentage of Tom's qualified retirement plan funds that would be forfeited upon terminating his employment, it is essential to understand the concept of vesting. Vesting refers to the degree of ownership a plan participant has over their retirement benefits based on the length of their employment. In many qualified retirement plans, especially those that are employer-sponsored, there are vesting schedules that dictate when an employee fully owns their contributions and any employer contributions. If Tom is at a certain point in the vesting schedule and decides to terminate his employment, a percentage of the employer-contributed funds—commonly determined by the vesting schedule—can be forfeited. In this case, the chosen answer indicates that 20% of the qualified retirement plan funds would be forfeited. This could suggest that Tom is at a point in which the vesting schedule dictates that 80% of the contributions (both his own and possibly the employer's) are fully vested, while the remaining 20% pertains to funds that he would lose due to the early termination of his employment. Understanding this percentage is critical as it impacts financial planning and considerations for employees deciding to leave their jobs or retire.

To determine the percentage of Tom's qualified retirement plan funds that would be forfeited upon terminating his employment, it is essential to understand the concept of vesting. Vesting refers to the degree of ownership a plan participant has over their retirement benefits based on the length of their employment.

In many qualified retirement plans, especially those that are employer-sponsored, there are vesting schedules that dictate when an employee fully owns their contributions and any employer contributions. If Tom is at a certain point in the vesting schedule and decides to terminate his employment, a percentage of the employer-contributed funds—commonly determined by the vesting schedule—can be forfeited.

In this case, the chosen answer indicates that 20% of the qualified retirement plan funds would be forfeited. This could suggest that Tom is at a point in which the vesting schedule dictates that 80% of the contributions (both his own and possibly the employer's) are fully vested, while the remaining 20% pertains to funds that he would lose due to the early termination of his employment.

Understanding this percentage is critical as it impacts financial planning and considerations for employees deciding to leave their jobs or retire.