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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.


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.


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.

References in periodicals archive ?
In the absence of historical data, key input assumptions (such as the vesting period, expected term, and contractual term of an option) can be obtained from public filings of companies designated as suitable com-parables for the target company.
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.
In this case, you and your employee agree to extend the vesting period (that is, a rolling risk of forfeiture approach) so that the vesting period ends at the new, revised time your employee plans to retire.
Two things can help with this: (1) Make vesting periods long-term, and (2) tie stock-based compensation to individual performance.
This report presents tables on teacher retirement programs in SREB states (Social Security participation, employer contribution rates, teacher contribution rates, vesting period, benefits formula, and normal retirement provisions); major medical insurance (state plans and annual employer and employee contributions); and employer contributions for selected employee benefits as a percentage of average salary.
They can accrue dividends during the vesting period and reinvest them in additional shares.
A vesting period will last 12 to 36 months from a reward allocation.
The prerequisite for reward payment is that a key employees employment or service continues until the end of the vesting period.
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.