Vested Benefit

What is a 'Vested Benefit'

A vested benefit is a financial incentive of employment that an employee is fully entitled to. Employers sometimes offer their employees benefits that they acquire full ownership of gradually or suddenly, as they accumulate more time with the company. This process is called graduated vesting or cliff vesting, and its purpose is to give employees a reason to stay with the company long term. When the employee has earned full rights to the incentive after a predetermined number of years of service, those benefits are called fully vested.

BREAKING DOWN 'Vested Benefit'

An example of a type of benefit that might vest gradually is shares of the company's stock. An employee might be awarded 100 shares of stock as a performance bonus after year one of employment. Under a graduated vesting plan, the employee might acquire full ownership of 20% of the shares after year two, 40% after year three, 60% after year four, 80% after year five and 100% after year six. The stock bonus would be a partially vested benefit in years two to five, and a fully vested benefit after year six.

RELATED TERMS
  1. Cliff Vesting

    The process by which employees earn the right to receive full ...
  2. Fully Vested

    A person's right to the full amount of some type of benefit, ...
  3. Graded Vesting

    The process by which employees gain a certain percentage of irrevocable ...
  4. Graduated Vesting

    The accelerated benefits employees receive as they increase the ...
  5. Vesting

    The process by which employees accrue non-forfeitable rights ...
  6. Unconditional Vesting

    Pension benefits that are entitled to the employee without any ...
Related Articles
  1. Economics

    What Does Vesting Mean?

    Vesting is the process of accruing non-forfeitable rights.
  2. Taxes

    401(k) And Qualified Plans: Eligibility Requirements

    By Denise ApplebyAny business, including sole proprietorships, partnerships, corporations and government entities may adopt a qualified plan. An employee may not adopt a qualified plan, but an ...
  3. Professionals

    Qualified Plan Rules and Options

    Qualified Plan Rules and Options
  4. Retirement

    How do you calculate penalties on a 401(k) early withdrawal?

    Find out how to calculate the penalties on early withdrawals from your 401(k), including the impact of the additional 10% tax penalty, vesting and income tax.
  5. Professionals

    Top heavy plans

    Top heavy plans
  6. Executive Compensation

    How Restricted Stocks and RSUs Are Taxed

    Many firms pay a portion of their employees’ compensation in the form of restricted stock or restricted stock units.
  7. Professionals

    Employee Sponsored Retirement Plans

    Employee Sponsored Retirement Plans. This section deals with ERISA considerations and some basic tenets: Fiduciary Responsibility, Eligibility, Vesting and Communication
  8. Options & Futures

    How Restricted Stock and RSUs Are Taxed

    This form of executive compensation limits how these stocks can be sold. Find out more here.
  9. Taxes

    Is HD Vest Financial Services Right for You?

    Here's what you need to know about HD Vest Financial Services.
  10. Professionals

    Employer-Sponsored Retirement Plans

    FINRA/NASAA Series 26 Section 4 - Employer-Sponsored Retirement Plans. This section discusses the basic tenets of ERISA being fiduciary responsibilty, eligibility, vesting and communication.
RELATED FAQS
  1. What is cliff vesting?

    An employee is considered "vested" in an employer benefit plan, once they have earned the right to receive benefits from ... Read Answer >>
  2. Can my company ever be entitled to take my 401(k)?

    Find out why your employer may be able to take part of your 401(k) if you leave your employment too soon, including how different ... Read Answer >>
  3. How do I "vest" something?

    Vesting is a term usually related to pension plans that some employer's provide to their employees.An employer may make contributions ... Read Answer >>
  4. What is a vest fleece?

    A vest fleece is a term first coined by Jack Ciesielski, founder of The Analyst's Accounting Observer, and it relates to ... Read Answer >>
  5. What are the penalties of cashing out a 401(k) before retirement?

    Learn about the penalties for early 401(k) distributions, including how taxes and vesting schedules can reduce your net withdrawal. Read Answer >>
  6. Based on the Employment Retirement Income Security Act (ERISA), a retirement plan ...

    The correct answer is b. With regard to eligibility, the plan must cover all employees 21 and older who have worked for the ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center