Harness Money

Graded vesting is another type of vesting schedule used in employer-sponsored retirement plans, such as 401(k) plans. Unlike cliff vesting, where an employee becomes fully vested after a specific period, graded vesting allows employees to gradually gain ownership of their employer’s contributions over time.

Under a graded vesting schedule, employees earn a certain percentage of vesting for each year of service, typically based on a vesting schedule set by the plan. The vesting schedule determines the percentage of employer contributions that an employee is entitled to based on their length of service.

For example, a common graded vesting schedule might be a “6-year graded vesting schedule” with the following percentages:

– Year 1: 0% vested

– Year 2: 20% vested

– Year 3: 40% vested

– Year 4: 60% vested

– Year 5: 80% vested

– Year 6: 100% fully vested

Using this example, if an employee leaves the company after completing two years of service, they would be 20% vested and would have ownership of 20% of the employer’s contributions made on their behalf. The percentage of vesting increases gradually as the employee completes each year of service until they reach full vesting after six years.

Graded vesting schedules provide a gradual accrual of ownership rights for employees, allowing them to retain a portion of the employer’s contributions even if they leave before full vesting is reached. This provides a measure of retirement savings protection for employees who may not stay with a company for an extended period.

It’s important to note that specific vesting schedules can vary depending on the plan and employer. Employees should review their plan documents, such as the summary plan description (SPD), to understand the details of their graded vesting schedule.