What is cliff vesting?

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Cliff vesting refers to an employee's rights in an employer pension plan being completely vested at one point in time. The employee has no rights until that point and full rights after that point.  

Other plans vest partially. In such plans, an employee's rights might be vested 20% per year for 5 years.  All things being equal, a partially vesting plan protects the employee because even if they change jobs within the first 5 years (in this example), the employee would at least get a partial benefit. If the plan used cliff vesting, the employee would receive nothing if they terminate employment (for any reason) prior to the vesting point.


 

March 2009
3 weeks ago