Retirement 101

What happens if I change jobs?

Some defined contribution plans are sponsored by a union/labor organization with many employers contributing to the same plan (this is called a multiemployer plan). If you remain with the same employer but transfer to a job not covered by the labor plan, your employer must give you vesting credit for the time you work even though your employer won’t be contributing to the plan on your behalf. If you get a job with another employer that contributes to the same multiemployer plan, you will continue earning benefits the same as if you were with your original employer. If you get a job on a project in another city or region, working for an employer that doesn’t contribute to your plan but instead to a different plan, you may be able to continue earning benefits in your original plan under a reciprocity agreement.

Have you worked instead for an employer with its own plan (a single-employer plan)? If you change jobs, you get to keep any money you’ve put into your defined contribution plan. Whether you get to keep any money your employer contributed into your account depends on whether you’re vested.

• If you’re fully vested, the employer’s money is yours.
• If you aren’t fully vested, you give up (forfeit) the portion of your employer’s money that was not vested. When you change jobs, you must also decide what to do with the amount saved in your account.
• Leave it where it is. Even though you’re no longer receiving money from your old employer, you may be able to keep your account with their plan, making use of their system and investment choices.
• Roll it over. With this option, you ask your old plan to transfer (roll over) your money to another retirement account. Some defined contribution plans allow rollovers by new employees. Check with your new benefits/HR department or fund office to see if you can transfer money into their plan. You can also roll your money into an individual retirement account (IRA).
• Cash it out. This is usually a bad idea because:
  • If the money you withdraw had been in a traditional pretax defined contribution account, you’ll have to pay income tax on the amount you withdraw.
  • If you’re not yet age 59½, you’ll also be hit with a federal 10% early withdrawal penalty on the amount you withdraw.
  • If you use the money to pay a bill or buy a new car, for example, you’ve lost that money’s growth potential for use in retirement.
  • Your money will no longer have the tax advantages of a defined contribution plan.