What Is Vesting and Why Should You Care?

Author: Adam Luehrs / Source: fivecentnickel.com

Vesting refers to the act of becoming fully entitled in an employer’s retirement fund, pension plan, stock options, or other related assets. The vested assets that you have can never be taken away from you. Money that has not vested, however, is lost when you leave the company.

So it’s critical that you understand the difference.

Employers offer employees certain perks to incentivize them to remain loyal and deliver premium work. Giving employees non-forfeitable ownership of employer-sponsored retirement and pension assets is one of the main ways companies do this.

If your employer offers a pension plan, stock options, or matching contributions for a 401 (k) account, it’s important to pay attention to the vesting schedules for participating. Not paying attention to vesting means that you could forfeit the funds you’ve accrued if you leave a company before you reach key vesting milestones. Here’s a look at the three scenarios for vesting schedules.

Immediate Vesting

Some companies offer immediate vesting. This means that employer contributed funds are yours immediately. This also means you won’t have to worry about forfeiting the employer-matched portion of your funds when you leave a company.