vested

Question

Company policy used to be that one had to work for the company for ten years before becoming vested, but now it is just six years to be fully vested.Does "become vested" mean to own the company's share? Please advise.LC

Marius Hancu · Accepted Answer

Yes, owning something of/from  the company, including shares.

BarbaraPA · Answer

Vesting can be a little complicated.

Let's say a company had a plan where there is zero vesting until three years, and then it's 25% until six years. Now let's say that they have a profit-sharing account and a matching-fund retirement account. The first only the company contributes to, and the second, they match whatever you put in at 25%.

In year one, they but $1000 in your profit sharing account. You put $4000 into your retirement account, and they match it with $1000. If you leave before the three years, you lose all of that $1000 in profit sharing and the $1000 they matched in your retirement account, because you are not at all vested. The $4000 that YOU put in, you get to keep, of course.

The same thing happens the next two years.

At three years, there is $3000 in your profit sharing, and $15000 in your retirement - $12K from you and $3K from them. At that point, you are 25% vested. So if you leave, you get $750 from profit sharing, all of your $12K, and $750 of their contribution.

Even if not another dollar is put in after that point, at six years, you are "fully" (100%) vested, so if you leave the company, you get to keep it all - your own contributions plus all of the company's match.

Clive · Answer

Hi guys,

Yes, I'm sure 'vesting' can become complicated. However, my experience of this has always been simple. I've only encountered this in connection with the topic of pensions.

Tom works for a company for ten years, and the company holds money that will be used to pay Tom a pension at age 65. Tom is 40. He leaves the company. Depending on various factors, he can either take the current amount in cash, or he can leave it with the company and actually receive a pension from that company when he turns 65. Leaving his pension money with the company is called 'vesting'.

Best wishes, Clive.

BarbaraPA · Answer

What's a pension?

(I say that as a joke, of course, but in the U.S., the traditional pension has pretty much disappeared and has been replaced by employee funded retirement accounts. If there are employer matches, that's when the vesting comes in.)

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