Vesting
Also called: vesting schedule, vested balance
Vesting is how you gain ownership of money your employer puts into your retirement plan account. Your own paycheck contributions are always 100% vested, but employer contributions, such as a match, may become fully yours only after a set period of service.
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How it works
Plans choose among several kinds of schedules. With immediate vesting, employer money is yours right away. With cliff vesting, you own none of it until a set point, such as three years of service, and then all of it. With graded vesting, ownership rises in steps, for example 20% after two years and 20% more each year until 100% after six. The plan defines a year of service, often as at least 1,000 hours worked in 12 months.
Vesting matters most when you leave a job. The vested part of your account is yours to keep, whether you leave it in the plan, roll it over, or withdraw it, while the unvested part of employer contributions may be forfeited. Plans must fully vest employees who reach the plan’s normal retirement age or whose plan is terminated.
Your annual benefit statement typically shows your vested balance alongside the total. If you are weighing a job change, comparing your years of service with the schedule can be worthwhile, because a short gap can sometimes separate owning part of the employer money from owning all of it. The summary plan description or plan administrator can confirm your schedule and how service is counted.
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Sources and further reading
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