Vesting

Vesting

The process by which employees accrue non-forfeitable rights over employer contributions that are made to the employee's qualified retirement plan account.

Notes:

Generally, non-forfeitable rights accrue based on the number of years of service performed by the employee. The exact requirements are specified in the plan document, which also contains any applicable regulations. Employees are always 100% vested in salary-deferral contributions as well as SEP and SIMPLE employer contributions.

See also: 401k Plan, Employee Stock Option (ESO), Option, Pension Plan

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Vesting

Nonforfeitable ownership (or partial ownership) by an employee of the retirement account balances or benefits contributed on the employees behalf by an employer. The Tax Reform Act of 1986 established minimum vesting rights for employees based on their years of service—full vesting in five years or 20% vesting per year starting by the end of the third year.