Vesting schedule
A vesting schedule sets when employer contributions to a retirement plan become the employee’s non-forfeitable property.
Employee elective deferrals are always fully vested from the moment they are withheld, including designated Roth contributions. A vesting schedule governs only employer money: matching, profit-sharing, and other contributions that can be forfeited if the employee leaves too early. Federal law sets outer limits on how slow schedules may be for employer contributions in a qualified plan. The plan document chooses the actual schedule inside those limits. Vesting balances follow the plan recordkeeper: a payroll report shows contributions made, never the vested percentage.
How do cliff and graded vesting schedules differ?
Under a three-year cliff, an employee who leaves with two vesting years would forfeit the entire match. Service counts in vesting years the plan document defines, not calendar years of employment. A plan may count a twelve-month period in which the employee completed a stated number of hours of service. Under that rule, a part-time employee can work a full year without earning a vesting year. Plan termination and normal retirement age accelerate vesting regardless of the schedule, as do death or disability under many plans.
| SCHEDULE | HOW EMPLOYER MONEY VESTS |
|---|---|
| Cliff | Nothing for a stated period, then the whole balance at once |
| Graded (graduated) | In annual steps, commonly 20% a year, until fully vested |
| Safe harbor | Generally immediate full vesting of the contributions that satisfy the safe harbor |
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.