Vesting

Definition

The process by which participants gain ownership (or nonforfeitable rights) in employer contributions made to employer sponsored plans. Certain contributions are always immediately 100% vested. These include salary deferral contributions and all contributions to SEP and SIMPLE IRAs.

Referring Cite

IRC § 411(a)(2), IRC §416(b)(1)

Additional Helpful Information

A vesting schedule makes sense only if the plan covers non-owner employees. For plans that covers only the business owners (owner-only plans), for instance the SBO-401(k) plan, contributions are usually 100% vested.

For contributions that are not immediately 100% vested, the plan should be designed to include a vesting schedule. The vesting schedule must be within the limits established under the Code.

For example, the following vesting schedule must be used for defined contribution plans

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