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.
Exam Tip
6-year graded: 0% year 1, then 20% per year. Employees get PARTIAL benefits even if they leave early.
What is Graded Vesting?
Graded vesting increases incrementally over time.
Standard 6-Year Graded
| Years | Vested |
|---|---|
| 2 | 20% |
| 3 | 40% |
| 4 | 60% |
| 5 | 80% |
| 6 | 100% |
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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.
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.
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.
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