Forfeiture Of Vested Benefits

What Does Forfeiture Of Vested Benefits Mean?

In the context of insurance, the forfeiture of vested benefits refers to the legal process by which a beneficiary loses their rights to the benefits they would otherwise have been entitled to. This may occur due to a breach of contract or failure to meet certain conditions outlined in the policy. This is different from how a beneficiary collects on a life insurance policy, where the right to the death benefit usually doesn’t depend on years of employment or completion of a vesting schedule.

Insuranceopedia Explains Forfeiture Of Vested Benefits

The Employee Retirement Income Security Act (ERISA) is a law that regulates employee benefits, including pension plans, and establishes minimum standards for these plans. Under ERISA, the forfeiture of vested benefits can occur if a beneficiary:

• Experiences a break in service with the employer, or
• Terminates employment before completing the required years of service and/or the vesting period.

Employers may also establish additional conditions that, if unmet, may lead to the forfeiture of vested benefits. These may include termination of employment for cause or a conviction of a felony that violates the employee’s oath of office. When vested pension benefits are eventually paid out, they often take the form of an annuity, which is why a forfeiture can mean losing access to a stream of retirement income rather than a single lump sum.