Spectrum Resource Center

Advice, Articles, Events, Insights, News, Newsletters, Opinions, Press Releases, Updates, and More from Spectrum.

Child with Money and Calculator

What Does Vesting Mean? What is a Retirement Plan Vested Balance?

What is Vesting?

In retirement plans, vesting means ownership. Vesting is expressed as a percentage. The percentage indicates how much ownership a participant has over an account balance or accrued benefit.

In 401(k) Plans, participants can contribute money from their pay. This is known as an elective deferral contribution or salary deferral contribution. Participants always have 100% ownership over these contributions, plus any investment gains (or losses). However, money contributed by an employer to a participant's account may be subject to a vesting schedule.

What is a Vesting Schedule?

A vesting schedule is like a staircase. Each step in the staircase represents a greater ownership percentage, until you finally reach 100% ownership. Climbing the staircase generally means working longer for your employer. Employers have some flexibility in vesting schedule design and their length, so one retirement plan may differ from another. However, all vesting schedules follow either a cliff or graded format. The following example shows the difference between these formats:

Years of Service Cliff Vesting Schedule (3-Year ) Graded Vesting Schedule (6-Year )
0 0% 0%
1 0% 0%
2 0% 20%
3 100% 40%
4 100% 60%
5 100% 80%
6 100% 100%

What is a Vested Account Balance?

A vested account balance is the portion of a retirement plan account owned by the participant. A vested account balance equals the vesting percentage multiplied by the account balance. A vested account balance can equal the account balance only if the vesting percentage is 100%. In any other instance, the vested account balance will always be less than the account balance. As an example, suppose the vesting percentage is 40% and the account balance is $12,000. In this example, the vested account balance is $4,800.

If I Leave, What Happens to the Unvested Balance?

The account balance minus the vested account balance equals the unvested account balance. Sadly, the unvested account balance is forfeited. In 401(k) Plans, forfeited account balances never revert to employers. However, forfeited account balances can reduce future employer contributions or pay administrative expenses.

Why do Plans have Vesting Schedules?

Employers often provide retirement benefit plans to attract and retain workers. Vesting schedules can help retain workers because employees may think twice about leaving if they would forfeit a large retirement account balance.

How Can I Get Information About Vesting in My Plan?

If you have questions about your plan's vesting, refer to your Summary Plan Description (SPD) or an annual benefit statement. If you do not have an SPD or annual benefit statement, your employer, human resources department, or retirement plan service provider should be able to assist you.

Key Takeaways

  • Vesting is the percentage ownership of an account balance or accrued benefit.
  • Vesting generally increases with additional years of service.
  • A vested account balance is the account balanced owned by a participant.
  • Participants should always consider vesting when making future employment decisions. Leaving your employer might cost you a lot of money.

blog comments powered by Disqus


401k loan participant loan investing margin professional plan design practice defined benefit pension fees dol retirement readiness documents compliance spectrum open golf pano cancer event tournament philanthropy fiduciary rule tax cuts press release bi cloud technology azure plan intelligence docusign microsoft myretirement limits irs retirement plan contribution asset allocation investments newsletter cybersecurity plan termination merger acquisition gender retirement gap lifetime income investment returns women men erisa defined contribution financial wellness employees financial stress plan faq participant questions payroll finwell plan education fis impact award technology innovation education entreprenuers business accumulation startup wealth ira charity millennials 40th anniversary celebration soc-1 automation recordkeeping case study portal fiduciary tax deduction enrollment escalation video automatic qdia qualified default investment alternative roth participant outcomes uncashed checks distributions debt credit saving cash balance cbpp safe harbor nondiscrimination adp acp top-heavy plan sponsor 3(16) hardship withdrawal forfeiture forfeit vested vesting owner audit bond bundled unbundled psoy plan sponsor of the year abg mfa consulting employer connect reports student loans db/dc providers services guide erisawrap welfare benefit plan fundraiser document cancer reserach retirement confidence wrap spd wrap document plan document welfare benefits employee benefits healthcare wrap unvested vested account balance spectrumopen spd wrapspd spectrumplatform market volatility participant behavior socially responsible esg plan participation secureact SECURE legislation secureact2019 secureactof2019 secure act secure act of 2019 qaca participation restate restatement erisa bond fidelity bond bonding goals plan amendment election 2020 coronavirus covid-19 business continuity cares act cares covid19 relief retirement plan relief the cares act workforce demographics older employees covid the secure act engagement SECURE 2.0 Act Retirement Plan Legislation 401(k)

ERISA Workplace Retirement Plan Limits

The federal government annually publishes updated qualified retirement plan limits, which impact the contributions, benefit accruals, and compliance of ERISA covered qualified retirement plans. The below tables summarize the most significant changes in recent history.


Keep up on our evolving products, services, solutions, and technology through our Newsletters.

About Our Firm

Spectrum is a B2B consulting firm, which enables American Workers to plan and save towards a dignified financial future by designing, administering, and operating the ranges of retirement and financial plans for U.S. employers.

Get in touch

  • Address: 6402 19th Street, Tacoma, WA 98466, USA

  • Phone: +1 (253) 565-2100

  • Email: Contact Us Form