The amount of time a participant must work before earning a non-forfeitable right to a benefit.
For Defined Benefit (DB) plans, once a participant is vested, the accrued benefit is retained even if the worker leaves the employer before eligibility for Early Retirement or Normal Retirement. There are two types of DB plan vesting:
- Cliff vesting – No vesting occurs until an employee satisfies the service requirements for 100% vesting—for example, 5 years.
- Graded vesting – An employee’s non-forfeitable right to a benefit increases over time, until reaching 100%.
For Defined Contribution (DC) plans, vesting schedules vary under ERISA and only apply to employer contributions; employee contributions (including pre-tax contributions) are always 100% vested. There are three types of vesting schedules:
- Cliff vesting – No vesting occurs until an employee satisfies the service requirements for 100% vesting—for example, 5 years.
- Graded vesting – An employee’s non-forfeitable percentage of employer contributions increases over time, until vesting reaches 100%.
- Immediate full vesting – Employees are immediately eligible to receive 100% of employer contributions.