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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 ?
Vesting schedule: 0-2 years, 0%; 2 years, 15%; 3 years, 35%; 4 years, 65%; 5 years, 100%.
Using the same scenario, here are the additional assumptions necessary to value the option under the FASB's new standard: expected option life of four years, which is the average time from grant to exercise; volatility of 30 percent; dividend yield of 1.5 percent; forfeitures of 4 percent per year; vesting period of two years; and risk-free interest rate of 6.5 percent.
Nevertheless, recognizing expected forfeitures only addresses part of the impact of vesting restrictions on the Black-Scholes value of an option.
The accounting literature does not consider time-related vesting to create variability in the number of shares that an employee can receive, and performance-based acceleration does not affect the number of shares; it only affects the timing of the exercise.
Has anybody promised the equivalent of vesting even though it's not legally required?
* How certain is Harry that he will be able to meet the conditions for vesting?
Whether or not the plan is funded, ERISA's participation and vesting standards do not apply.
In addition, the company awarded a restricted stock unit to one new non-executive employee, representing the right to receive up to 40,500 shares of its common stock, with 1/4th of the shares subject to the award vesting on each anniversary of the grant date, subject to the employee's continuous service through each vesting date.
Although ERISA contains a strict vesting requirement for pension benefits, it expressly exempts employee welfare benefit plans from that requirement.
The company said that these inducement grants, consisting of restricted stock unit awards with the right to receive up to 141,824 shares of its common stock, will vest over three years with 33% of the underlying shares vesting on each of the first, second and third anniversaries of the vesting start date.
The IRS reasoned that the postponement of the shares' vesting dates did not cause them to become transferable, nor did it free the employee from the obligation to provide future services.
A newsletter issued by the IRS's Dallas Key District Office warns plan administrators of two plan practices that may result in violations of the plan qualification rules: (1) disregarding years of service in which an employee does not make elective deferral in determining the vesting of matching contributions in a Sec.