IRS Publication 6389 – If you sponsor, administer, or participate in a 401(k), profit-sharing, or other defined contribution (DC) retirement plan, understanding vesting is essential. Vesting determines when employees gain full ownership of employer contributions in their accounts. IRS Publication 6389 (Rev. June 2021) serves as the official IRS guidance document explaining minimum vesting standards for defined contribution plans under Internal Revenue Code (IRC) Section 411.
This SEO-optimized guide breaks down Pub 6389, the current minimum vesting rules as of 2026, permitted schedules, special rules, compliance tips, and more. No major changes to these minimum standards have occurred under SECURE 2.0 or recent legislation—rules remain aligned with the Pension Protection Act of 2006 updates.
What Is IRS Publication 6389?
IRS Publication 6389, titled Employee Benefit Plans: Explanation No. 2 – Minimum Vesting Standards Defined Contribution Plan, is part of the IRS’s determination letter program toolkit. It includes:
- Form 5623 (Worksheet 2 – Determination of Qualification)
- Form 6041 (Deficiency Checksheet 2)
The publication helps IRS specialists, plan sponsors, and administrators identify qualification issues during plan reviews or amendments (e.g., for the 2020 Required Amendment List in Notice 2020-83). It applies to most private-sector DC plans but excludes governmental plans and certain maritime/seasonal industry plans.
Key takeaway from Pub 6389: Every participant’s vested interest in employer-derived contributions must meet or exceed statutory minimums at all times. Plans providing faster vesting (including immediate 100% vesting) automatically satisfy the rules.
Download the official PDF directly from the IRS: https://www.irs.gov/pub/irs-pdf/p6389.pdf.
Vesting Basics in Defined Contribution Plans
Vesting means an employee owns a nonforfeitable percentage of their account balance.
- Employee contributions (elective deferrals in a 401(k), after-tax contributions): Always 100% vested immediately (IRC 411(a)(1)).
- Employer contributions (matching, nonelective/profit-sharing): Subject to a vesting schedule, but never slower than IRS minimums.
- Earnings on all contributions follow the same vesting as the underlying contributions.
Full (100%) vesting is required no later than:
- Normal retirement age (usually age 65 or plan-defined earlier age)
- Plan termination or complete discontinuance of contributions
Minimum Vesting Schedules for DC Plans (Current as of 2026)
Per IRC Section 411(a)(2)(B) and Pub 6389, DC plans must use one of these two schedules for all employer contributions (effective for plan years after December 31, 2006):
| Years of Service | 3-Year Cliff Vesting | 2-to-6 Year Graded Vesting |
|---|---|---|
| 1 | 0% | 0% |
| 2 | 0% | 20% |
| 3 | 100% | 40% |
| 4 | 100% | 60% |
| 5 | 100% | 80% |
| 6+ | 100% | 100% |
Notes:
- Plans may adopt immediate 100% vesting or any faster schedule.
- Pre-2007 rules were slower for some matching contributions; all employer contributions now follow the accelerated schedules above.
- The plan document must specify which schedule applies and how years of service are counted.
(Confirmed on IRS.gov Retirement Topics – Vesting page, last updated August 2025.)
How Years of Service and Breaks in Service Work?
Pub 6389 details service crediting rules (aligned with DOL regulations):
- A year of service for vesting is typically a 12-month computation period with at least 1,000 hours of service.
- Breaks in service: Five consecutive 1-year breaks can disregard prior service under the “rule of parity” in many cases.
- Special protections apply for maternity/paternity leave (hours credited to prevent a break but not always for vesting credit).
- Service with controlled groups, predecessor employers, and leased employees generally counts.
Special Rules Highlighted in Pub 6389
- Top-heavy plans: Must satisfy the same minimum vesting schedules above (3-year cliff or 6-year graded). Top-heavy DC plans also require minimum allocations to non-key employees.
- Plan termination: 100% vesting of all affected participants’ accounts.
- Changing vesting schedules: Amendments cannot reduce already-vested percentages (anti-cutback rule under IRC 411(a)(10) and 411(d)(6)). Participants with 3+ years of service must receive an election to stay under the old schedule.
- Forfeitures: Unvested amounts may be forfeited and reused per plan rules, but restored if mandatory employee contributions are repaid in certain cases.
- Cash-out limits: Small balances ($5,000 or less) can be distributed with proper notice.
Why Pub 6389 Matters for Plan Sponsors and Administrators?
Use the worksheet in Pub 6389 (Form 5623) as a self-audit tool before submitting determination letter applications or making amendments. A “No” answer flags potential disqualification issues.
Common compliance steps:
- Ensure the plan document contains one of the approved schedules.
- Track hours of service accurately.
- Apply correct vesting percentages on distributions or forfeitures.
- Document any schedule changes and provide participant elections where required.
Failure to meet minimum standards can disqualify the plan, triggering taxes, penalties, and loss of tax-deferred status.
Examples from IRS Publication 6389
The publication includes practical illustrations, such as:
- How maternity leave affects break-in-service rules.
- Vesting continuation when an employee returns mid-year after partial service.
- Proper handling of forfeitures when an employee repays withdrawn mandatory contributions.
2026 Update: No Changes to Minimum Vesting Standards
SECURE 2.0 Act (2022) and subsequent guidance introduced automatic enrollment, higher catch-up contributions (ages 60–63 starting 2025), Roth catch-up rules (2026), and long-term part-time employee rules—but did not alter the core minimum vesting schedules or IRC 411 requirements for standard employer contributions in DC plans. Long-term part-time employees receive vesting service credit after 500 hours in some contexts, but the percentage schedules remain unchanged.
Conclusion and Next Steps
IRS Publication 6389 remains the authoritative, trusted resource for understanding and applying minimum vesting standards in defined contribution plans. Whether you’re drafting a new plan, amending an existing one, or educating employees, following these rules ensures qualification and protects participant rights.
Action items:
- Download Pub 6389: IRS PDF Link
- Review your plan document against the approved schedules
- Consult a qualified ERISA attorney or third-party administrator for plan-specific advice
- Bookmark IRS.gov Retirement Topics – Vesting for ongoing updates
Frequently Asked Questions (FAQ)
Q: What is the fastest vesting allowed in a 401(k)?
A: Immediate 100% vesting of employer contributions.
Q: Are employee 401(k) deferrals ever subject to vesting?
A: No—always 100% vested from day one.
Q: Does a top-heavy 401(k) require faster vesting?
A: No additional acceleration beyond the standard 3-year cliff or 6-year graded minimum.
Q: Can a plan change from graded to cliff vesting?
A: Yes, but anti-cutback protections and participant election rights apply.
For the most current official guidance, always refer to IRS.gov and consult a benefits professional. Proper vesting compliance protects your plan’s tax-qualified status and supports employee retirement security.
Sources: IRS Publication 6389 (Rev. 6-2021), IRC §411, IRS.gov Retirement Topics – Vesting (updated Aug 2025), and related Treasury Regulations. This article is for educational purposes and does not constitute tax or legal advice.