Vesting

A process by which an employer increases your ownership of an asset based on how long you have worked for the employer. Vesting is often applied to employer’s matching contributions to a defined contribution retirement plan. For example, if an employer put $1,000 a year in a defined contribution plan for your benefit with a vesting schedule of 20% per year, you would own 20% of the first $1,000 or $200 at the end of the first year, 40% of the first two years’ $1,000 contributions or $800 at the end of the second year and so on up to owning 100% of all contributions once you have been with the employer for five years. If you leave the company before you are fully vested, the employer will take the portion of its contributions that are not yet vested and the related investment returns out of your account. You always own 100% of your contributions and their returns.