Glossary
Vesting
Vesting is the process by which an employee earns full ownership of employer-contributed retirement money over time, according to a schedule set by the plan.
An employee's own contributions are always 100% theirs immediately. Employer matches and profit-sharing may vest gradually ("graded," e.g. 20% per year) or all at once after a period ("cliff," e.g. three years); leaving before vesting forfeits the unvested portion. Safe harbor contributions and SIMPLE/SEP money vest immediately by rule.
Why it matters in practice
Vesting schedules quietly change the math of job timing: leaving weeks before a cliff date can forfeit thousands of dollars, so the vesting statement belongs in any job-change calculation. Pension vesting matters even more — public systems like CalPERS and CalSTRS require a minimum service period (commonly five years) before any lifetime benefit is owed at all. The plan's summary plan description or benefit statement states exactly where an employee stands.
Related terms: 401(k) · Safe Harbor 401(k) · Pension · Plan Sponsor · Defined Contribution Plan