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Comment by the_mitsuhiko | Hacker News Reader

I’m not familiar with the Irish system but why is it standard practice to claw back contributions for people? What is the reason for enabling and doing this?

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Their tax-exempt status is conditional on the pension fund being in action for at least two years. If they're given to you without that, they're no longer tax-exempt pension contributions but employee income which has tax implications for both employee and employer.

Yikes, that seems pretty horrendous law. In the the UK the tax exempt status comes from the fact you're locking away the income for, say, decades; and you'll be liable to normal income tax at the point of withdrawal.

It's designed to encourage people to save money into their pensions, to make up for decades of the government underfunding social security pensions. It seems really shitty to make that tax break conditional on job security.

Designed is a really strong word. The tax free nature of pension contributions come from the near impossibility of otherwise sensibly taxing annuities.

How should a post tax annuity be calculated? The simplest annuities can probably be done (e.g. pay 100k and receive 6k a year til you die). But, if you paid tax on the full 6k that would mean that the 100k was being taxed again. However, tax none of it and that would see no tax on interest because it was being paid through an annuity. That's before one even starts thinking about spousal benefits or inflation linking.

You get into some funny (and seemingly unfair) rules once tax exemption is involved. It's why you have limited rollover of unused FSA funds in the US--and the ability to rollover at all is relatively recent.

And yet HSA funds are the most tax advantaged of all. No tax going in, can be invested in anything that can be bought via Fidelity, and no tax coming out, if used for healthcare expenses at any point in your life, even for your dependents.

No one said laws have to be consistent :-)

Its not a claw back per-se. Under the Irish pensions laws an employee does not have the right to retain the employers contributions to a pension if they leave the position with the company within the first 2 years of contributions to the pension (does not mean 2 years of service. If you have a 6 month probation for example, the employer will not contribute for that time. The period is 2 years from the first employers contribution). Any employee contribution is fully retained by the employee. In this case, because they are being made redundant, the employers share of the pension is refunded (through no fault of the employee).

This is normal in the USA as well. Most traditional (non-FAANG-adjacent) companies have 1-6 year vesting periods for employer contributions.

Also places with real pensions have similar vestment periods for the pensions, leave before then and you typically get your contributions back but certainly not the employer’s. Though those are rare outside government work in the US anymore.

I have had many jobs with no vesting in my employee match. Heck for my company I own, I follow the “default” path from guideline 401k, and my match to my employees vests immediately.

(But yes also had 1-2 jobs that the match had a vesting period)

I've never encountered a vesting schedule for employer contributions myself, but I've always been aware of their existence. I think one company I joined had 12-18 month vesting schedule that they'd just recently gotten rid of.

I wonder if it's more common outside of tech?

Definitely more common outside of tech. It looks like 72% of 401(k) plans have a vesting period, with the most common durations being 3 or 5 years. https://www.cnbc.com/2021/06/17/most-workers-wait-years-for-...

Amazon clawed back 401k contributions if you left before 2 years..I can't remember the exact timeframe.

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