New research from the Government Accountability Office shows that restrictive vesting, matching, and participation policies in 401(k) plans is squeezing a more mobile workforce’s ability to adequately save for retirement.

The GAO’s review of 80 plans ranging in size from 100 to 5,000 participants found that 57 plans have vesting policies that require participants to work for a set amount of time before employer contributions to accounts can be claimed.

And 19 plans require participants to be employed on the last day of the year before they can receive their employer’s matching contributions. Also, 33 plans require workers to be 21 to participate in plans.

Related: Fewer 401(k)s in 2013

Those policies are allowed under the Employee Retirement Income Security Act. GAO said employers cite cost containment and reducing employee turnover as the motivating factors behind the policies.

The policies’ impact on potential savings is substantial under some scenarios, GAO found.

A medium-level earner who doesn’t save in a plan or receive a 3 percent employer match when they are between the age of 18 and 20 could be losing up to $134,456 by the time they retire at age 67.

An average earner at age 30 who leaves a job before the end of the year, forgoing the employer’s 3 percent match, could lose nearly $30,000 in savings when they retire at age 67.

And a hypothetical worker who leaves two jobs in their career after two years of service could mean they forfeit nearly $82,000 in savings when they retire, assuming the companies have a three-year vesting policy.

The U.S. Department of Treasury is responsible for developing proposals that inform Congress on potential changes to 401(k) policies. The vesting caps for employer contributions are now 15 years old.

A new look at policies

The GAO’s report recommends a re-evaluation of vesting policies by the Treasury Department, as well as lawmakers’ consideration of changes to ERISA that would lower the minimum age for plan eligibility and reduce the use of sponsors’ last-day-of-the-year matching policies. The Treasury Department did not offer GAO a comment on its recommendations.

Under current law, plan sponsors can’t restrict access to participation based on age when a worker reaches age 21. And sponsors must offer access once a worker has one year of service to a company. ERISA also says employers must offer the company match — if it is offered in the plan — to employees once they reach two years of service.

And under current vesting policies, employer contributions that are forfeited if a worker leaves an employer can be used by the plan to pay for administrative costs.

The impact of the policies on the workforce’s ability to save for retirement is accentuated by the increasing mobility of today’s average worker.

According to the Bureau of Labor Statistics, the median job tenure for workers in the private sector was 4.1 years in January of 2014. Data shows that from 1978 to 2012, the average worker held more than 11 different jobs between the ages of 18 and 48.

And data from the 2008 Census shows that more than 400,000 workers were ineligible to participate in their employers’ 401(k) plans because of a minimum-age policy. Another 3 million workers are estimated to be restricted from plan participation based on minimum-service eligibility policies.

Of the 57 plans reviewed by the GAO that have vesting policies, the most common period was six years. Data from Vanguard shows that more than 55 percent of its sponsor clients have a vesting policy for employer contributions, with the most common period being five years.

Instant Insights /

GAO says 401(k) vesting and participation policies pinch retirement savings

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