Vesting

Background

Vesting in a retirement plan means different things for participants in defined-benefit (DB) and defined-contribution (DC) 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 DB plan, it means the participant has worked the required number of years necessary to earn the right to accrued benefits. In a DC 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 DB plans, it is five years. For the employer contributions to DC 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.