Final answer:
If a plan participant is 20% vested, he has the right to 20% of the total plan benefits, which applies to employer-contributed funds in defined contribution plans like 401(k)s or 403(b)s.
Step-by-step explanation:
If a plan participant is 20% vested, he has the right to 20% of the plan benefits. Vesting refers to the percentage of ownership a plan participant has in the employer-contributed funds to a retirement plan, such as a 401(k) or a 403(b). When a participant is 20% vested, this means that he can claim 20% of the total benefits available to him, based on the employer's contributions and any investment growth on these contributions, upon leaving the company or retiring.
It is important to understand that personal contributions are always 100% vested, which means the employee has full ownership over their own contributions and the investment returns on those contributions.
Defined contribution plans are increasingly common and offer the benefit of being portable from one employer to another. Additionally, these plans are tax deferred, making them an attractive retirement savings vehicle.