What Does Vested Benefit Mean?
A vested benefit refers to a benefit that is absolute, complete and not dependent on any condition. For instance, employers offer their employees several benefits that are contingent on the employee continuing to remain in service with the employer. Once the employee completes a predetermined number of years of service with that particular employer, the employee earns complete rights to these benefits provided by the employer.
Insuranceopedia Explains Vested Benefit
Many pension and retirement accounts offer benefits that employees retain after working for a specified period of time with a particular employer. These accounts typically require that the employee complete a specific number of years in the service of the employer offering the pension or retirement benefits. People refer to this process as graduated vesting or cliff vesting. This period will usually be five years, although different companies might follow different rules concerning the number of years at which the benefits offered vest.
For instance, many companies offer their employees shares of a company's stock with each year of service. Consider a situation where a company offers an employee 100 shares of a stock after completion of one year of service. The company grants ownership of 20% of these shares with each successive year. Therefore, the employee acquires complete ownership of these 100 shares after six years of working for the employer. In this situation, the stock bonus denotes a partially vested benefit in years two to five and becomes a fully vested benefit after year six.