Being vested in a retirement plan means that you have earned the right to receive the full benefits of the plan. It is a way for employers to incentivize employees to stay with the company for a certain period of time. Vesting typically applies to employer contributions to retirement plans, such as 401(k) plans. There are two main types of vesting schedules: cliff vesting and graded vesting.
Cliff vesting means that you become fully vested in the retirement plan after a specific number of years of service. For example, if your employer has a cliff vesting schedule of 5 years, you would become fully vested in the plan after completing 5 years of service.
Graded vesting means that you become partially vested in the retirement plan over a period of time. Each year of service increases your vesting percentage. For example, if your employer has a graded vesting schedule of 5 years with a 20% vesting percentage each year, you would be 20% vested after 1 year, 40% vested after 2 years, and so on, until you become fully vested after 5 years.
It's important to note that vesting only applies to employer contributions, not to employee contributions. Employee contributions are always 100% vested.
Vesting in a retirement plan is significant because it determines how much of the employer's contributions you are entitled to if you leave the company before reaching full vesting. If you are not fully vested, you may only be entitled to a portion of the employer's contributions or none at all, depending on the vesting schedule.
I hope this helps clarify what it means to be vested in a retirement plan! Let me know if you have any further questions.