Is there 100% vesting upon death?
Rev. 12/20/07, E-mail Alert 2007-17

An employee is 40% vested in the employer contributions in his 401(k) plan at the time of his death. Does the law require this employee to become 100% vested upon death?

No, 100% vesting upon death is not required by law. However, many defined contribution plan documents are written to 100% vest an employee who dies while in service. The increase to 100% vesting usually does not apply to former employees who terminated employment without attaining 100% vesting. Thus, an employee who was 60% vested upon termination would not receive an increase in the vested account value upon their death. Rather, their beneficiary(ies) would receive only the amount vested on the participant’s termination date. However, if the plan terminated before the participant’s death, the participant would become fully vested.

Note: Many older defined benefit plans forfeited the participant’s benefit upon death. That is the reason why the qualified joint and survivor annuity rules were created; to protect married participants with vested accrued benefits.