Harness Money

401(k) cliff vesting refers to a specific type of vesting schedule for employer contributions made to a 401(k) retirement plan. Vesting determines an employee’s ownership of the employer-contributed funds or benefits in a retirement plan. In the context of cliff vesting, an employee becomes fully vested in the employer’s contributions after a specific period of time.

With cliff vesting, an employee’s ownership of the employer’s contributions to their 401(k) plan occurs all at once, usually after a certain number of years of service. Prior to reaching the cliff vesting point, the employee has no ownership rights to the employer’s contributions. However, once the cliff vesting period is completed, the employee becomes fully vested and is entitled to the entire amount contributed by the employer.

For example, let’s say an employer has a 401(k) plan with a cliff vesting schedule of 3 years. If an employee leaves the company before completing 3 years of service, they would not be entitled to any portion of the employer’s contributions. However, if they complete the 3-year period, they would become fully vested and have full ownership rights to the employer’s contributions made on their behalf.

It’s important to note that vesting schedules can vary between employers and retirement plans. Some plans may have a cliff vesting schedule, while others may have a graded vesting schedule where employees gradually become vested over a specific period. The details of a specific employer’s vesting schedule can be found in the plan’s documentation, such as the summary plan description (SPD) or the plan’s vesting schedule document.