Cliff Vesting

AAA

DEFINITION of 'Cliff Vesting'

The process by which employees earn the right to receive full benefits from the employee's qualified retirement plan account at a specified date, rather than becoming vested gradually over a given period of time. Cliff vesting happens when employees are considered vested in an employer benefits plan once they have earned the right to receive plan benefits. Vesting can occur gradually, where the employee becomes partially vested after each X years of service. For example, the employee could be 20% vested after two years of employment, 30% vested after three years of employment and so on until becoming fully vesting.

INVESTOPEDIA EXPLAINS 'Cliff Vesting'

An example of cliff vesting is when an employee becomes fully vested after five years of full-time employment. The vesting schedule for the employers' contribution to private retirement plans is mandated by the federal government. Employers may use vesting schedules in an attempt to retain talent and reduce attrition costs. Employees who leave a job often lose all the benefits that were not yet vested at the time of departure, so the employees may be incentivized to remain with the company longer to receive all benefits.

RELATED TERMS
  1. Vesting

    The process by which employees accrue non-forfeitable rights ...
  2. Graduated Vesting

    The accelerated benefits employees receive as they increase the ...
  3. Employee Stock Option - ESO

    A stock option granted to specified employees of a company. ESOs ...
  4. Pension Plan

    A type of retirement plan, usually tax exempt, wherein an employer ...
  5. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
  6. Vest Fleece

    A slang term used to describe a situation in which a company's ...
Related Articles
  1. Retirement

    Is Your Defined-Benefit Pension Plan Safe?

    Your plan may not last in a rocky market. Find out whether your savings will be affected.
  2. Entrepreneurship

    Is An ESOP Right For Your Business?

    Discover how to transfer your company's net worth to the next generation of entrepreneurs.
  3. Options & Futures

    Benefit Issues When Your Employer Goes Bankrupt

    There are some safeguards in place to ensure that health benefits don't just disappear when a plan is canceled.
  4. Budgeting

    The Demise Of The Defined-Benefit Plan

    Experts are making bleak predictions for your post-work years. Be prepared and plan for your future.
  5. Professionals

    What are some examples of common fringe benefits?

    Learn how offering fringe benefits can be a strategic recruitment and retention tool for employers and drastically increase total compensation for employees.
  6. Professionals

    How are an employee's fringe benefits taxed?

    Discover how receiving fringe benefits can increase total compensation for employees and how it is important to understand how these benefits are taxed.
  7. Professionals

    What incentives does an employer have in offering fringe benefits?

    Learn how offering fringe benefits is a powerful business tool for employers to attract and retain quality employees while also keeping overhead low.
  8. Professionals

    What's the average salary of an investment banker?

    Compare average annual salaries of investment bankers based on position. Different levels of the career result in different levels of base payment and bonuses.
  9. Professionals

    What's the average salary of an actuary?

    Get insight into the intriguing career of risk analysis and forecasting. How much do actuaries make, and how is this field expected to fare in the coming years?
  10. Professionals

    What's the average salary of a chief financial officer (CFO)?

    Learn about the average salary for a chief financial officer (CFO). Includes a detailed examination of total compensation including bonus and benefits.

You May Also Like

Hot Definitions
  1. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  2. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  3. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  4. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  5. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
  6. Bank Guarantee

    A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor ...
Trading Center