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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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.


The process by which an employee with a qualified retirement plan and/or stock option becomes entitled to the benefits of ownership, even if he/she no longer works at the company providing the retirement plan or stock option. Vesting occurs after an employee has worked at the company for a certain number of years; once vesting occurs, the benefits of the plan or stock option cannot be revoked.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved


If you are part of an employer pension plan or participate in an employer sponsored retirement plan, such as a 401(k), you become fully vested -- or entitled to the contributions your employer has made to the plan, including matching and discretionary contributions -- after a certain period of service with the employer.

Qualified plans must use one of the standards set by the federal government to determine that period.

If you become entitled to full benefits gradually over several years, the process is called graded vesting. But if you have are entitled only when the full waiting period is up, the process is called cliff vesting. If you leave your job before becoming fully vested, you forfeit all or part of your employer-paid benefits.

However, you are always entitled to all the contributions you make to a retirement plan yourself through salary reduction or after-tax payments.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
For example, sentences such as "the term of a nonqualified option is usually five to 10 years" or phrases like "typically a four-year vesting period" are commonplace in a company's 10-K submission.
And if discounted shares have gone up in value after the vesting period, the difference in value is also taxable as income.
To be effective, RSU plans are generally designed with vesting periods of longer than three years.
First, if your employee agrees to extend the vesting period, and for some reason does not stay with you to the end of the vesting period, the compensation is forfeited.
Two things can help with this: (1) Make vesting periods long-term, and (2) tie stock-based compensation to individual performance.
They can accrue dividends during the vesting period and reinvest them in additional shares.
The term of the options granted is for a period of ten years from date of grant and subject to an eighteen month vesting period with one-third of the grants vesting every six months.
Nearly 45% of the shares were issued to key employees joining the buyer and are subject to a four-year vesting period.
The main changes concern limitation of the vesting period to three years and application of the directive to cross-border workers, at the request of the European Parliament.
The stock options have an exercise price of USD8.04 and will vest 50% on the first anniversary of the grant date and quarterly thereafter over the remaining three-year vesting period. The option grant has an expiration date of 2 April 2018.
* Vesting period of the option grant (V): 1.5 years