Vesting schedules

How it works

A worker's own deferrals are always 100 percent vested from day one. Employer matching and profit sharing money follows the plan's schedule, and federal law allows two shapes: cliff vesting, where nothing vests until a set number of years of service and then all of it does, with three years as the longest cliff allowed, and graded vesting, where a percent vests each year, reaching 100 percent by the sixth year at the latest. Some plans vest employer money at once. A year of service is usually defined as 1,000 hours in a plan year, and the plan document says exactly how it counts. Certain events, such as reaching the plan's normal retirement age or the plan being ended, vest everything regardless of the schedule. Safe harbor matching contributions vest immediately.

What it gives

The worker's own money is never at risk from a vesting schedule.

Graded schedules let a worker keep part of the employer money even after a short stay.

The vesting percent is printed on the plan statement, so it can be checked before a job change.

What it costs, or where the catch is

Leaving a few weeks before a cliff date can forfeit years of employer contributions.

A plan counts hours, not calendar years, so part time work may not add up to a year of service.

Forfeited money stays with the plan and is used to offset employer costs, not returned later.

A worked example

Owen's plan uses a three year cliff. His employer has put in $2,400 a year for two years and nine months, which is $6,600 with growth to about $7,000. If he leaves now, he keeps $0 of that $7,000. If he stays three more months past his third anniversary, all $7,000 is his. His own deferrals of $9,000 are his either way.

Where it goes wrong

The usual miss is giving notice without first looking up the vesting date, and forfeiting employer money that would have vested a short while later.

Who confirms it for you

For your own numbers, the plan administrator or HR. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.

The official source

IRS: Retirement topics, vesting. Every figure that changes by year comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number.