How To Guide For: Understanding How Pension Vesting Works

The term vesting refers to whether or not the money that has been set aside for you in a retirement plan is yours to keep if your employment is terminated. Vested benefits are those to which you have an absolute right even if you resign or are terminated. Vesting is a term used in the Employee Retirement Income Security Act (ERISA). ERISA protects the rights of employees to receive certain promised benefits, including pension benefits and income from profit-sharing plans, once they have worked at a job for a certain period of time. Once the employee has "vested" and the benefits are guaranteed under ERISA, the employee is entitled to the benefits as an absolute right, which means the employee must be provided with those benefits no matter what, regardless of the employee's current status with the employer. So an employee may quit or be terminated and still be eligible for the vested benefits. Employers are allowed to use a graduated vesting schedule for defined benefit plans and cliff vesting and a graduated vesting plan for defined contribution plans. There are certain specified maximum time periods that covered employers may require employees to work before benefits vest. To get more in depth information on how pension vesting works click on the pictures below to read the articles.