How do I "vest" something?

By Katie Adams AAA
A:

Vesting is a term usually related to pension plans that some employer's provide to their employees.An employer may make contributions to the plan by matching the employee's contributions or set aside an amount based on a percentage of the employee's salary and their years of service, depending on how the plan is set up. An employee is considered "vested" in a pension plan, once they have earned the right to receive benefits from the plan upon retirement. This is based on a minimum time period of employment. When working for a company that offers a pension plan, the employee "vests" in the plan by fulfilling the employee's financial obligations and work requirements as defined by the plan.

Vesting can also refer to other employer provided benefits, such as stock options. Many employers provide employees the opportunity or "option" to purchase shares of the company's stock at a future date at a predetermined set price. To cash-in on the "option" or purchase the stock at the set price, the employee must usually remain employed by the company from the time the "option" is granted until the date that it can be exercised. At that time the employee is considered vested as defined by the terms of the stock option.

(For more on this read, The 401k and Qualified Plans: Introduction and Get the Most out of Employee Stock Options.)

This question was answered by Katie Adams.

RELATED FAQS

  1. What moral hazards are present with salaried employees?

    Discover that moral hazards are a common problem facing many companies today. The good news is that there are plenty of ways ...
  2. How do deferred tax assets help in meeting retirement goals?

    Learn how tax deferred assets can help individuals achieve long-term financial goals such as retirement and how they differ ...
  3. What are the best ways to pay less income tax?

    Learn about reducing your income tax burden by contributing to an employer-sponsored retirement plan or IRA, and see what ...
  4. What is the difference between a stop loss order and a limit order?

    Learn how to manage losses and reduce risk in volatile markets while reviewing the differences between stop-loss orders and ...
RELATED TERMS
  1. Back Pay

    The amount of salary and other benefits that an employee claims ...
  2. Contingent Commission

    A commission with a value dependent on an event occurring, and ...
  3. Collection Commission

    The percentage of premiums that an agent is owed for collecting ...
  4. Cash Bonus

    A lump sum of money awarded to an employee, either occasionally ...
  5. Elder Care

    Elder care, sometimes called elderly care, refers to services ...
  6. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...

You May Also Like

Related Articles
  1. Options & Futures

    Give Yourself More Options With Real ...

  2. Options & Futures

    The Future Is Now: All About Futures ...

  3. Options & Futures

    How To Protect A Short Position With ...

  4. Mutual Funds & ETFs

    Greedy on the Dollar? See This Leveraged ...

  5. Options & Futures

    How To Build Valuation Models Like Black-Scholes ...

Trading Center