Are vesting schedules still effective?
Vesting schedules have traditionally been used by employers to manage retirement plan costs while encouraging employee loyalty. But new research shows they may not be as effective at retaining employees as once thought, though they still offer financial advantages to employers.
What is vesting, and how does it work?
“Vesting” means ownership of retirement plan funds. Employee contributions are always 100% vested; however, employees earn the right to employer contributions over time, based on years of service or hours worked. If an employee leaves before fully vesting, the unvested portion goes into the plan’s forfeiture account. Vanguard reports that over half of the plans it administers include a vesting schedule for employer contributions.
Vesting schedules are defined in the plan document and may vary:
- Immediate Vesting: Full ownership from day one.
- Cliff Vesting: 0% vested until a set number of years, then 100%.
- Graded Vesting: Ownership increases gradually each year.
The table below shows the differences between a cliff vesting schedule and a graded vesting schedule. For cliff vesting, the account becomes 100% vested after a set number of years, whereas a graded vesting schedule has gradual increases over a set number of years. This example reflects a three-year cliff vesting schedule and a six-year graded vesting schedule.
| Years of Service | Cliff Vesting | Graded Vesting |
| 1 | 0% | 0% |
| 2 | 0% | 20% |
| 3 | 100% | 40% |
| 4 | 100% | 60% |
| 5 | 100% | 80% |
| 6 | 100% | 100% |
Why do employers use vesting schedules, and what did Vanguard’s research reveal?
Employers who use vesting schedules are generally motivated by two main goals: retaining employees by encouraging them to stay longer in order to earn full benefits and managing costs by recouping unvested contributions when employees leave the company.
Vesting schedules are a common strategy used by about two-thirds of employers to promote retention, but their effectiveness is often limited by a lack of employee understanding. Many workers are unclear on how vesting works, which diminishes its intended impact.
A research report by Vanguard further challenges the idea that vesting schedules significantly influence employee retention. When comparing plans with immediate and three-year cliff vesting, they found no major differences in turnover, and many participants weren’t even aware their plan included a vesting schedule, highlighting a communication gap.
Employers benefit financially by recouping an average of 2.5% of contributions through forfeitures. However, these savings often come at the expense of lower-income employees, whose final retirement balances may be reduced by about 40%. This underscores the need for plan sponsors to balance the cost-saving benefits of vesting schedules with their potential negative impact on lower-paid, high-turnover workers.
What should plan sponsors do?
1. Review Your Plan Documents
Confirm if your plan has a vesting schedule and how it works.
2. Know Who Manages Vesting
Vesting is typically tracked by the plan sponsor, recordkeeper, or third-party administrator (TPA).
3. Communicate Clearly
Help participants understand the vesting schedule because it could influence their decisions and boost retention.
4. Understand Forfeiture Rules
Know how forfeitures can be used (e.g., offsetting employer contributions or plan expenses) and ensure compliance with your plan document.
Want help understanding or reviewing your plan’s vesting structure? Reach out to your Shepherd Financial advisor today.
i Plan Sponsor Council of America, 67th Annual Survey of Profit-Sharing and 401(k) Plans.
ii Internal Revenue Service.
iii How America Saves 2024, Vanguard, available at: institutional.vanguard.com/insights-and-research/report/how-america-saves.html.
iv Plan Sponsor Council of America, 67th Annual Survey of Profit-Sharing and 401(k) Plans.
v Does 401(k) vesting help retain workers?, Vanguard, available at:
Summer’s Here—Is Your Financial Plan on Track?
Warm weather, longer days, and vacation plans are all part of the summer season. But it’s also a great time to pause and take stock of your financial health. Mid-year check-ins can help ensure you’re on the right path before the year slips away. Here are a few smart questions to ask yourself:
Have your goals changed?
It’s always a good idea to review your credit report for accuracy and watch for signs of identity theft. A strong credit score is a key part of your overall financial picture.
How’s your credit score?
Our team can help you understand how disability insurance fits into your overall financial plan and guide you toward options that offer real security for life’s unknowns. Contact us today to get started.
Are your contributions on track?
Whether it’s a retirement account, emergency fund, or other savings goal, now’s a good time to evaluate your contributions. Could you increase them, even a little?
Does your spending still align with your plan?
If recent market activity or personal expenses have impacted your cash flow, consider whether your budget and spending plans for the rest of the year still make sense.
If any of these questions gave you pause, our team would be happy to talk through them with you. Let’s ensure your financial plan keeps pace with your life, summer, and beyond.
Caring for an aging parent, spouse, or loved one is one of the most selfless roles a person can take on. However, it often comes with unexpected financial challenges, such as covering medical bills, adjusting work schedules, managing insurance, or dipping into personal savings to cover the costs. Without a clear plan, these costs can strain your current budget and long-term financial goals.
Whether you’re already supporting a loved one or preparing for future responsibilities, these five practical strategies can help you regain financial clarity while continuing to provide meaningful care.
1. Set a Financial Baseline
Start by understanding how caregiving is affecting your personal finances. Are you covering medical bills, transportation, or daily care items? Have your working hours or earnings changed? Track these costs and compare them to your monthly income and savings goals. Knowing where you stand financially is the first step toward making more informed and confident decisions.
2. Explore Financial Support Options
Don’t assume you need to absorb all the costs alone. Research long-term care insurance benefits, veteran support programs, Medicaid, or other local and national resources that can help reduce the financial burden. If you’re managing a loved one’s finances, ensure you have the proper legal access through power of attorney or similar documentation.
3. Create a Shared Caregiving Plan
If other family members or friends are involved, make sure roles are clearly defined, especially when it comes to financial responsibilities. One person might coordinate medical visits, another may help cover specific expenses, and someone else could handle paperwork or insurance. Transparent communication around costs and expectations helps prevent future conflict and supports a more sustainable plan.
4. Don’t Neglect Your Own Financial Goals
It’s easy to place your own retirement savings or emergency fund on hold during caregiving, but that can have long-lasting effects. Continue contributing to your future when possible, and consult a financial advisor about adjusting your plan to reflect new caregiving responsibilities without sacrificing your long-term goals.
5. Get (and Stay) Organized
Keep key documents such as insurance policies, wills, healthcare directives, and financial statements both accessible and secure. Organizing paperwork, whether digitally or physically, can save time and reduce stress during critical moments when quick decisions are necessary.
Being a caregiver requires time, energy, and heart, but it shouldn’t come at the expense of your financial health. With the right planning and support, it’s possible to care for others while protecting your future. If you’re navigating the financial side of caregiving, our team is here to help. Contact us to learn how we can help you create a plan that supports your family and your financial well-being.
It might seem counterintuitive, but plan sponsors are responsible for keeping track of participants, even after they leave the company. Sometimes these former employees become “missing participants,” meaning they’ve left an account balance in the plan but haven’t provided their updated contact information. In other cases, these former employees may simply stop responding to communications from the plan sponsor.
Missing participants can create real headaches for plan administration, especially when you’re trying to terminate a plan or reduce small account balances to lower recordkeeping costs. Still, the law requires plan sponsors to provide plan notifications to all participants, and failure to meet these disclosure obligations can result in penalties.
Steps for Locating Missing Participants
The Department of Labor (DOL) requires plan sponsors to follow a prudent and consistent process to locate missing participants. Here’s a recommended framework:
1. Develop a Consistent Process
Create a documented procedure for locating missing participants that can be applied consistently over time.
2. Audit Plan Data Regularly
Review your census file, which includes participant contact information, to identify any gaps or outdated data. Make auditing a routine part of your administrative process
3. Determine Next Steps
After reviewing your data, assess whether additional measures are needed to locate participants. Remember, it’s the sponsor’s duty—not the participant’s—to maintain contact.
Consider the following tools:
- Free online search engines and public databases (such as those for licenses, mortgages, and real estate taxes)
- Obituaries
- Social media
- Commercial locator services or credit-reporting agencies
- Other reasonable methods, provided privacy rights are respected
4. Document everything
Keep clear records of the process, steps taken, and results for audit and compliance purposes.
5. Revisit the Process Regularly
This isn’t a one-time task. Add this to your fiduciary calendar and reassess periodically, based on your plan’s size and complexity.
Following these steps not only helps you stay compliant but also ensures participants maintain access to their hard-earned retirement savings. Let us know if you need help evaluating your current process or implementing a new one.
Think you don’t need disability coverage? Think again.
We plan for the unexpected with wills, estate strategies, and life insurance. But many overlook one critical protection: disability insurance—the coverage that protects your income and lifestyle while you’re still living.
According to the Social Security Administration, nearly 1 in 4 Americans in their 20s will experience a disability before retirement age. And yet, most households are financially unprepared for a sudden loss of income. If you’re unable to work, your income may stop—while your expenses continue, or even rise, due to medical and rehabilitation costs.¹
Unlike life insurance, which helps protect loved ones after you’re gone, disability insurance helps protect your daily living and long-term financial goals, such as covering your mortgage or paying for education, when illness or injury prevents you from working.
Disability insurance is issued by participating insurance providers. Policies can vary widely in coverage length, benefit amount, waiting periods, and whether they cover your “own occupation” or “any occupation.” Availability depends on the insurer and your state of residence. Any benefits are based on the financial strength and claims-paying ability of the issuing insurance company.
Is Government Assistance Enough?
Many discover they don’t qualify for Social Security Disability Insurance (SSDI) or that the process is long, complex, and restrictive. Those who do qualify often receive only a fraction of their previous income, which is far below what’s needed to maintain their lifestyle.
This May, during Disability Insurance Awareness Month, take a moment to ask yourself: If disability struck tomorrow, would your income—and your family’s future—be protected?
Now is the time to explore your options.
Our team can help you understand how disability insurance fits into your overall financial plan and guide you toward options that offer real security for life’s unknowns. Contact us today to get started.
1. SSA.gov, 2023
Planning ahead for education costs can feel overwhelming, but a 529 savings plan offers a smart, flexible way to get started. Whether you’re saving for college, K–12 tuition, or even your own future learning, 529 plans provide valuable tax benefits and investment growth opportunities. Here’s what you need to know:
Does saving in a 529 plan severely limit financial aid?
No, 529 plans don’t significantly hurt financial aid. Parent-owned 529 assets are counted at a maximum of 5.6% in aid calculations, while student-owned assets can be assessed up to 20%. This makes the impact of 529 savings relatively small.
Will I lose the money if my child or beneficiary doesn’t go to college or doesn’t need all the funds?
No, you won’t lose unused money in a 529 plan. The money can be used for post-secondary education, transferred to another beneficiary, or even used for your own education. If your child or beneficiary receives a scholarship, you can withdraw an equivalent amount without penalty, though earnings will still be subject to taxes. Non-education withdrawals, however, may incur taxes and a 10% penalty on the earnings portion. Contributions are always tax- and penalty-free. Beginning January 1, 2024, the IRS also permits 529-to-Roth IRA transfers under certain conditions.
Can money in a 529 plan be used for K-12 school tuition?
Yes, money in a 529 plan can be used for elementary, middle, or high school tuition, with up to $10,000 allowed per beneficiary each year. At the post-secondary level, 529 plan funds can be used for a wide range of higher education expenses, including tuition, fees, room and board, books, supplies, and computers or related equipment.
Can only parents open a 529 college savings account?
No, parents are not the only ones who can open a 529 college savings account. Anyone—friends, family members, or even non-relatives—can open an account for a beneficiary, regardless of income or their relationship to the student. They can also name themselves as the beneficiary if desired. Additionally, anyone can contribute to the account, so grandparents, uncles, aunts, and friends are all welcome to help. However, it’s important to note that if a family member other than the parent opens the account, it may affect the student’s financial aid eligibility depending on when the funds are used.
Can I save enough to make a difference?
Yes, even small, consistent savings can add up—especially over time with compounding interest. Encourage friends and family to contribute for birthdays or holidays to boost your efforts. Every bit helps reduce future borrowing.
Saving for education through a 529 plan offers flexibility, tax advantages, and long-term benefits that can significantly impact your child’s future. Whether you’re just starting or already saving, every contribution helps reduce future costs. Understanding how these plans work empowers you to make smart, goal-aligned decisions—it’s never too early to begin.
As recent market fluctuations unfold, we want to take a moment to update you on how Shepherd Financial is actively monitoring the situation and working to support both you and your retirement plan participants.
What’s Driving the Volatility?
Markets have experienced increased turbulence in recent days, largely due to rising global trade tensions. The U.S. has proposed and implemented new tariffs on imports from several countries, and there is ongoing uncertainty around potential retaliatory measures. These developments have impacted investor sentiment, causing notable swings in both domestic and international equity markets, as well as some disruption in fixed income performance.
Our Response and Ongoing Commitment
As your retirement plan consultant, we are carefully monitoring these developments and their protentional impact on plan investment options. Our investment team is reviewing fund performance, manager commentary, and market outlooks to ensure your plan’s investment menu continues to support long-term outcomes. For participants, we remain focused on reinforcing the value of disciplined, long-term investing. We continue to educate participants on the importance of staying the course during short-term volatility, reminding them that retirement investing is built to weather market cycles.
What You Can Expect from Us
You can expect us to stay closely attuned to market developments and evaluate any potential implications for your plan’s investments. We remain committed to providing you with fiduciary oversight and ensuring your investment menu remains diversified and aligned with long-term goals. If you or your participants have questions, our team is readily available for group sessions or one-on-one support. Please let us know if you would like to schedule time to review your plan’s investment strategy or discuss additional communications for your employees.
We are here to help you. Please don’t hesitate to reach out to us with any questions at shepfinteam@shepherdfin.com.
Are you saving for the future? Many people struggle with knowing where to start when it comes to saving. While some seek advice on how to invest or diversify their savings, others are simply unsure of how to begin. If you’re one of those people who feels unsure about how to start saving, you’re not alone. Even individuals with higher incomes often find themselves living paycheck to paycheck, with little to no savings for emergencies or retirement. The good news is that it’s never too late to begin. There are plenty of simple ways to start saving, even in small amounts, that can help improve your financial future without drastically altering your current lifestyle.
When it comes to saving, the issue often isn’t how much money you earn, but rather how much you spend. While unavoidable expenses, such as medical bills or home repairs, can make it difficult to save, for many people, excessive spending is simply a habit that can be changed with little effort. It’s easy to feel overwhelmed by the thought of saving, especially when it seems like a daunting task. However, taking small, manageable steps today can help set you on the path to a secure financial future. Getting started is easier than it seems, and there are simple strategies that can help you begin saving right now.
Tip #1: Put it aside
When considering a major purchase, like a car, or even a smaller one, like a pair of shoes, try pausing for a week or two before making a decision. Give yourself time to reflect and think it through. After that time, if you still feel it’s the right choice, move forward knowing it’s a well-considered decision, not just an impulse buy. If not, skip it. Most of us have made at least one purchase we later regretted—if not more. Imagine if you could get that money back and have it earning interest in your savings account instead. Over time, it could really add up.
Tip #2: Pay yourself first
When you receive your paycheck, you likely prioritize paying your mortgage or rent, your car payment, your insurance, and so on. But somewhere near the bottom of that list is you. Why? It’s probably because you know there’s no immediate penalty for not paying yourself. It’s time to change that mindset and hold yourself accountable. Make saving a priority by putting money into your savings account first, before covering your other expenses. By taking care of yourself upfront, you’ll eliminate any excuses by the end of the month. As long as your monthly bills don’t exceed your income, you can easily set aside a comfortable, consistent amount to save each month.
Tip #3: Shop smarter
In our fast-paced lives, it’s easy to grab a quick snack or coffee when it’s convenient. But if you stop at a convenience store for a 12 oz. coffee every morning, you’re likely spending at least $2.00 daily—and that quickly adds up. Have you ever considered how much you could save by making your own coffee? And what about the power of interest on those savings? If you saved just $600 a year in a basic savings account with a 5% annual return, after 30 years, you could have over $30,000 (after taxes). That’s the impact of consistently saving—even small amounts. Just $2 a day adds up to well over $600 by the end of the year. Start paying attention to those “small” daily expenses—they really can make a big difference over time.
Tip #4: See your destination
They say hindsight is 20/20. Imagine this: if 10 years ago you had started saving just $200 a month in a shoebox under your bed, you’d have $24,000 by now! While you can’t go back in time, you can certainly look ahead. Take advantage of free financial calculators available online and start plugging in numbers to see where your savings could take you in 20-30 years, depending on how much you start saving today. Once you see the potential, saving money might just become your favorite hobby—a fun competition with yourself to see how much you can grow your future net worth.
Tip #5: Ditch the shoebox
Speaking of that hypothetical shoebox under your bed, while the money inside might gather dust, it certainly won’t earn any interest. And while it is unlikely that you’re storing cash in a shoebox, it’s worth considering where and how you’re saving your money. Traditional savings accounts do offer interest, but there are other options that could potentially yield higher returns. You’ve probably heard of money market accounts or certificates of deposit (CDs), but might not be sure exactly what they are or if they’re right for you. It’s important to educate yourself about your options and make informed decisions when it comes to managing your finances.
Saving for the future doesn’t have to be overwhelming. By making small, intentional changes in your spending habits and prioritizing savings, you can start building a more secure financial future today. Whether it’s putting money aside before spending on other expenses, making smarter purchases, or exploring better savings options, every step you take brings you closer to your goals. Remember, it’s not about how much you earn—it’s about how wisely you manage and save your money. Take the time now to plan for the future, and you’ll be amazed at how much you can achieve over time. Start today, and watch your financial well-being grow.
Tax Efficiency in Retirement
As you approach retirement, one of the most important considerations is how to manage your tax liability. While many retirees expect lower taxes in their later years, the reality can be more complex. The way you generate income in retirement—whether from work, retirement accounts, or Social Security—will play a significant role in determining your tax burden. Understanding the different types of retirement accounts, such as pre-tax investments like traditional IRAs and 401(k)s or after-tax options like Roth IRAs, is crucial for making informed decisions about your retirement strategy.
Will you pay higher taxes in retirement? It’s possible, but it will largely depend on how you generate income. Will it be from working? Will it be from retirement plans? And if it does come from retirement plans, will distributions come from pre-tax or after-tax/Roth accounts? Understanding the types of accounts you have and their tax liability is crucial to retirement income and tax planning. Another factor to consider is the role Social Security will play in your retirement. When do you plan to start to take Social Security benefits? If you have a spouse, when do they plan on taking benefits? It’s critical to answer key Social Security benefits questions so you have a better understanding of how it will affect your taxable income.
What’s a pre-tax investment? Traditional IRAs and 401(k)s are examples of pre-tax investments that are designed to help you save for retirement. You won’t pay any taxes on the contributions you make to these accounts until you start to take distributions. Pre-tax investments are also called tax-deferred investments, as the money you accumulate in these accounts can benefit from tax-deferred growth. For individuals covered by a retirement plan at work, the tax deduction for a traditional IRA contribution in 2025 is phased out for incomes between $126,000 and $146,000 for married couples filing jointly, and between $79,000 and $89,000 for single filers.1 Keep in mind that once you reach age 73, you must begin taking required minimum distributions from a traditional IRA, 401(k), and other defined contribution plans in most circumstances. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
What’s an after-tax investment? A Roth IRA is the most well-known. When you put money into a Roth IRA, the contribution is made with after-tax dollars. Like a traditional IRA, contributions to a Roth IRA are limited based on income. For 2025, contributions to a Roth IRA are phased out between $236,000 and $246,000 for married couples filing jointly and between $150,000 and $165,000 for single filers.1 To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawals can also be made under certain circumstances, such as in the event of the owner’s death. Additionally, the original Roth IRA owner is not required to take minimum annual withdrawals.
Are you striving for greater tax efficiency? In retirement, it is especially important – and worth a discussion. A few financial adjustments may help you manage your tax liabilities. Talk with one of our professionals to start planning today!
1. IRS.gov, 2025
Cyber Safety Tip: Update
We’ve all been there. You’re scrolling through your phone, computer, or tablet, and a notification pops up.
“Update Me!”
While that isn’t the exact wording, the meaning is the same. Something wants to be updated to the most recent version. But the banner gets in your way, and you tab it to the side, thinking you will get to it later.
Then we forget it.
This doesn’t seem like a big deal. But it turns out updating your programs can be one of the easiest ways to make your life safer in the long run.
Some software updates contain security measures that help patch vulnerabilities that could lead to a cyberattack. They may include safety features that help keep intruders out if your phone is hacked or stolen.
So the next time you get an annoying pop-up asking for an update, take the extra time and get your device up to speed.
It could be the easiest security upgrade you ever have.
PRO TIP: Some antivirus programs can check your device for updates and keep you current (though it may cost extra, so read up before you click).