Business Glossary

right an employee gradually acquires by length of service at a company to receive employer-contributed benefits, such as payments from a pension fund , profit-sharing plan , or other qualified plan or trust . Employees must be vested 100% after five years of service or at 20% a year starting in the third year and becoming 100% vested after seven years.

entitlement of a pension plan participant (employee) to receive full benefits at normal retirement age , or a reduced benefit upon early retirement , whether or not the participant still works for the same employer. The Employee Retirement Income Security Act of 1974 (ERISA) mandates vesting under one of these rules:

1. forty-five year rule
2. five to fifteen year rule
3. ten year rule

On January 1, 1989, under the tax reform act of 1986 , the above vesting requirements were replaced with the following:

1. full vesting (100%) after a participant completes five years of service with an employer; or
2. vesting of 20% after completion of three years of service with an employer, increasing by 20% for each year of service thereafter, until 100% vesting is achieved at the end of seven years of service.

entitlement of a pension plan participant (employee) to receive full benefits at normal retirement age , or a reduced benefit upon early retirement , whether or not the participant still works for the same employer. Vesting rules as of January 1, 1989, are as follows:

1. full vesting (100%) after a participant completes five years of service with an employer; or
2. vesting of 20% after completion of three years of service with an employer, increasing by 20% for each year of service thereafter, until 100% vesting is achieved at the end of seven years of service.