Megacompany Employee Churn Meets 401(k) Vesting Schedules: A Sabotage on Workers' Retirement Wealth

Abstract

Retirement wealth inequality and retirement security are issues that the United States has been grappling with for years. Low-paid and minority workers are directly impacted and suffer from these issues the most. Here, the spotlight is on Amazon, one of America’s largest employers and one that has very high employee turnover. In order to be vested in Amazon 401(k) matching contributions, an employee must be there for three years—a requirement that is not being met given the much quicker turnover in their low-paid, predominantly minority warehouse workforce.

Until now, there has not been discussion about the grossly unfair result of mixing high employee turnover and 401(k) plan vesting schedules. This article shows that sizeable high turnover companies are taking advantage of the system by using 401(k) plan vesting schedules to their own benefit and to worsen retirement wealth inequality.

This article argues two main premises. The first argument aligns with President Biden’s order to governmental agencies to step up their data collection to quantify the inequities in the legal system. We need to collect more specific data on gender, race, and pay of those who terminate prior to vesting. This will allow us to assess the impact of vesting schedules on retirement plan inequality.

The article then argues that megacompanies should be foreclosed from using vesting schedules in their retirement plans. They simply employ too many people, and many are in high turnover businesses. It is against public and retirement security policy to allow high turnover megacompanies to shortchange employees and abuse the system by using vesting schedules in their 401(k) plans.

Something needs to be done to address the direct tension with retirement plan policy when employers that know they have high turnover use a vesting schedule. The article sets forth various tests as alternatives to immediate vesting. One method would be to consider significant number rather than percentage of workforce when determining whether a plan has experienced a partial plan termination. Another method could be to mimic existing anti-discrimination testing but in a manner that focuses on the forfeitures of the lower paid workers. A vesting for high turnover approach could reduce employee churn (incentivizing companies to do better for their employees) and if the company does not want to be subject to this, then they could simply amend their plan to immediately vest everyone.

Keywords: retirement wealth inequality, employee churn, employee turnover, 401(k) plans, 401(k) vesting schedules, Amazon, Labor, Financial Literacy, Retirement Security, Pension, Employment law, Generational Wealth