Understanding the Vesting Schedule

To many people new to the world of finance or who are working a first job, the term “vesting schedule” can be a confusing one.    

Really, though, it’s a fairly simple concept to understand. A vesting schedule is simply a schedule that a company you work for sets up to determine when you will be “vested” in the company, or, in other words, when you will acquire complete ownership of various assets.

The most common of these assets are retirement funds or stock option plans. It’s wise to take advantage of these plans and even wiser still to comply with your company’s vesting schedule.

That way, you will not have to forfeit your benefits, and you’ll show your employer that you’re with the company for the long haul!

Understanding Vesting

One of the most important things to understand about vesting is that, when you are not fully invested in a company in the way that it has set forth, you run the risk of losing or forfeiting the benefits or monies you have earned.

For this reason, it is extremely important to familiarize yourself with and fully understand and comply with your company’s vesting schedule. If you don’t, you run the risk of losing the benefits you have worked so hard for.

Another important factor to keep in mind is that you don’t have to worry about losing the money you contribute on your own. Forfeiture only applies to the monies that a company has contributed to you. In order to maintain those, you do have to follow the vesting procedures and policies your employer has set forth.

The Types of Vesting

Something else you should understand is that many different types of vesting exist.

For example, there is immediate vesting, which is fortunate for you since all funds contributed are fully yours the minute they go into your account.

However, immediate vesting is not as common as other types of vesting, such as cliff vesting, which transfers ownership of your benefits after a specific period of time during which you have been satisfactorily employed by the company.

There is also graded vesting, which gives you more and more ownership of your benefits as more and more time passes. Different companies will determine different vesting schedules, so it’s important to be aware of and comply with the specific rules related to your company. Furthermore, keep in mind that these common types of vesting schedules also apply to stock options offered by your employer.