Vesting means ownership. In a workplace retirement plan, it tells you how much employer-provided money you have earned the right to keep.
What it means
Money you contribute from your own pay is always yours. Employer contributions may become yours immediately or over time under the plan's vesting schedule.
A plan may use a cliff schedule, where employer money becomes fully yours at once after a stated service point, or a graded schedule, where your owned percentage rises over several years. Read the summary plan description because employers can count service differently.
A simple example
Riley contributes $200 every two weeks for 26 pay periods, or $5,200 for the year. The employer adds $100 each pay period, or $2,600. Riley is 50% vested in the employer contributions when leaving the job.
Riley keeps all $5,200 contributed personally and $1,300 of the employer money, for $6,500 before investment gains or losses. The other $1,300 of employer contributions may be forfeited under the plan. Waiting longer might have changed the vested percentage, so the departure date has a real dollar effect.
What people often miss
Vesting usually affects employer contributions, not the money taken from your own paycheck.
A statement can show an account balance larger than the amount you would keep today. Check the vested balance and how the plan credits service.
Three questions worth asking
- What percentage is vested today?
- When is the next vesting step?
- How does this plan count a year of service?
Checked against primary sources
This explanation was checked against the sources below. Rules and limits can change, so check the source before making a decision.
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