Vested Benefit

Updated: 19 December 2024

What Does Vested Benefit Mean?

A vested benefit refers to a benefit that is unconditional, absolute, and not dependent on any further requirements. For example, employers may offer benefits to employees that are contingent on their continued service with the company. Once an employee completes a specified number of years of service, they gain full rights to these benefits, making them vested.

Insuranceopedia Explains Vested Benefit

Many pension and retirement accounts offer benefits that employees retain after working for a specified period with a particular employer. These accounts typically require the employee to complete a set number of years of service with the employer offering the pension or retirement benefits. This process is referred to as graduated vesting or cliff vesting. The vesting period is usually five years, although different companies may have varying rules regarding the number of years required for benefits to vest.

For example, many companies offer employees shares of company stock for each year of service. Consider a scenario where a company offers an employee 100 shares of stock after one year of service. The company grants ownership of 20% of these shares each successive year. Therefore, the employee acquires full ownership of the 100 shares after six years of employment. In this case, the stock bonus represents a partially vested benefit during years two to five and becomes a fully vested benefit after year six.

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