Cliff Vesting
Cliff vesting is an all-or-nothing vesting schedule where employees become 100% vested after a specified period (typically 3 years for qualified plans), with no vesting before that point.
Exam Tip
Cliff = 0% until threshold, then 100%. Max 3 years for qualified plans. Employee contributions always 100% vested immediately.
What is Cliff Vesting?
Cliff vesting provides 0% vesting until a specific date, then jumps to 100% vested.
Cliff vs. Graded Vesting
| Year | Cliff (3-year) | Graded (6-year) |
|---|---|---|
| 1 | 0% | 0% |
| 2 | 0% | 20% |
| 3 | 100% | 40% |
| 4 | 100% | 60% |
| 5 | 100% | 80% |
| 6 | 100% | 100% |
Legal Maximums
| Plan Type | Max Cliff | Max Graded |
|---|---|---|
| Qualified Plans | 3 years | 6 years |
| Top-Heavy Plans | 3 years | 6 years |
| 403(b) | 3 years | 6 years |
What's Always Vested
Employee contributions = always 100% vested immediately.
Study This Term In
Related Terms
Vesting
Vesting is the process by which an employee earns full ownership rights to employer-contributed retirement benefits over time, with employee contributions always being 100% vested immediately.
401(k)
A 401(k) is an employer-sponsored retirement savings plan that allows employees to contribute pre-tax dollars, with potential employer matching, and tax-deferred growth until withdrawal.
Graded Vesting
Graded vesting is a vesting schedule where employees gradually earn ownership over time, typically 20% per year starting in year 2, until reaching 100% after 6 years maximum.
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