Vesting in a pension plan refers to a minimum amount of time you're required to work before you get to keep the contributions your employer makes to the plan on your behalf. For example, a company might require you to work for three years before you're vested in the contributions the employer makes to your 401(k) plan on your behalf.
Types of Vesting
The vesting schedules depend on the type of retirement plan and your employer. For example, you're always 100 percent vested in contributions your employer makes on your behalf to SEP and SIMPLE IRA plans. If you have a qualified plan, your company can either use cliff vesting or graded vesting. Cliff vesting requires that you be fully vested after three years of service -- as defined by the plan, generally 1,000 hours worked over 12 months -- but not vested at all until then. Graded vesting increases your vested percentage for each year of service with the employer, but it can take up to six years before you're fully vested.
- Ryan McVay/Photodisc/Getty Images