Definition
The process by which participants gain ownership (or nonforfeitable rights) in employer contributions made to employer sponsored plans. Certain contributions are always immediately 100% vested. These include salary deferral contributions and all contributions to SEP and SIMPLE IRAs.
Referring Cite
IRC § 411(a)(2), IRC §416(b)(1)
Additional Helpful Information
A vesting schedule makes sense only if the plan covers non-owner employees. For plans that cover only the business owners (owner-only plans), for instance the SBO-401(k) plan, contributions are usually 100% vested.
For contributions that are not immediately 100% vested, the plan should be designed to include a vesting schedule which must be within the limits established under the Code.
For example, the following vesting schedule must be used for defined contribution plans
|
Years of Vesting Service
|
Cliff vesting
|
Graded
Vesting |
|
1
|
0%
|
0% or more
|
|
2
|
0%
|
20% or more
|
|
3
|
100%
|
40% or more
|
|
4
|
100%
|
60% or more
|
|
5
|
100%
|
80% or more
|
|
6
|
100%
|
100% or more
|
