Vesting

Background

Vesting in a retirement plan means different things for participants in defined-benefit ( DBDefined benefit (DB) is a type of retirement savings plan in which the benefit amount depends on a formula that includes such factors as the employee's pay, years of employment, and age. ) and defined-contribution ( DCDefined contribution (DC) is a type of retirement savings plan in which employee and sometimes employers make contributions. Retirement benefit amounts depend on account accumulations over time. ) plans. The vesting period is the amount of time an employee must wait until becoming the full owner of employer-paid retirement benefits. In a DBDefined benefit (DB) is a type of retirement savings plan in which the benefit amount depends on a formula that includes such factors as the employee's pay, years of employment, and age. plan, it means the participant has worked the required number of years necessary to earn the right to accrued benefits. In a DCDefined contribution (DC) is a type of retirement savings plan in which employee and sometimes employers make contributions. Retirement benefit amounts depend on account accumulations over time. plan, it means that the participant owns the contributions the employer has made to the account. Employee contributions vest immediately. The maximum vesting period under federal law is different for the two types of plans. For DBDefined benefit (DB) is a type of retirement savings plan in which the benefit amount depends on a formula that includes such factors as the employee's pay, years of employment, and age. plans, it is five years. For the employer contributions to DCDefined contribution (DC) is a type of retirement savings plan in which employee and sometimes employers make contributions. Retirement benefit amounts depend on account accumulations over time. plans, it is three years.

VESTING: Policy

VESTING: Policy

Maximum vesting periods

The maximum vesting period for employers’ contributions to 401(k) plans should be no more than one year.