19.9.1 Cliff Vesting and Graded Vesting
All qualified plans must meet standards that set forth the employee vesting schedule and nonforfeitable rights at any specified time. For all plans, an employee has a 100% vested interest in benefits that accrue from the employee's own contributions. Benefits that accrue from employer contributions, however, must vest according to vesting schedules. There are two types if vesting schedules: Cliff vesting and Graded vesting.
Cliff vesting means that the employee must have a designated amount of years of service before becoming fully vested. (Programs vary with years of required service.) If the employee leaves the company before that specified time, any employer contributions would be forfeit.
- Three-year cliff vesting - 100% vestige after three years of service; Five-year cliff vesting - 100% vestige after five years of service; etc.
- Two to six-year graded vesting (also known as graduated vesting) - 20% increase each year beginning after two years of service until 100% vested after six years of service.
Employers are not restricted from variations of these vesting schedules as long as their schedule is no less favorable than those described.
