Life · Chapter 11 · ERISA Rules
Vesting
Definition
The schedule under which employees' rights to employer-contributed funds become nonforfeitable with years of service. ERISA minimums depend on the plan type. Defined CONTRIBUTION plans (401(k), money purchase, profit-sharing, stock bonus, ESOP): 3-year cliff (100% at 3 years) OR 2-to-6-year graded (20% at 2 years, +20% a year, 100% at 6). Defined BENEFIT plans: 5-year cliff OR 3-to-7-year graded (20% at 3 years, 100% at 7). Employees are ALWAYS 100% vested in their OWN contributions.
In plain English
Your money is yours from day one. The employer's match is earned over time — leave too early and unvested match stays behind.
Exam tip
⚠️ Old courses teach "5-year cliff or 3-to-7 graded" as THE answer. Since the Pension Protection Act of 2006 that is the defined benefit schedule only. For a 401(k) match the answer is 3-year cliff or 2-to-6 graded. Read the stem for which plan type it names.
Easy to confuse with
These are what this term gets tested against — if you can't tell them apart cold, drill the contrast.
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