Pension Plans: How Does Vesting Work?

If you want to secure your pension plans, then you might consider taking out one of two vesting options. These are designed to give you money on your pension benefits, without forcing you to wait forever in order to claim the money. If you are coming to the end of your working life, then these benefits could be a great way to secure your future income.

Cliff Vesting

When looking at short-term pension plans, you might consider cliff vesting. This involves putting a small amount of your income into a pension for a few years. The downside is that if you leave before the time is up, you will not receive any of the pension benefits; rather like falling off a cliff, all the money is gone. On the other hand, if you wait for five years, you will receive all of the benefits.

Graded Vesting

This works on a similar principle, but here the cliffs are more like steps. If you leave after 3 years, you will only receive about 20 percent of your benefits. For every other year that you stay at the company, you will gain another 20 percent towards your final pension benefit, ending when you have completed seven years, and gain all of the pension benefits.