403(b) Plans: What is “vesting”?

Vesting is a term used in a retirement plan to describe when a participant has complete ownership of the assets in their account. A participant is always immediately 100% vested or “fully” vested in any employee deferrals made to the account. However if the employer contributes matching or employer contributions to the account the participant may not fully vest immediately. The plan can implement either a “3 year cliff” vesting schedule or a graduated 6 year vesting schedule. If a participant is not fully vested and becomes ineligible to participate in the plan the unvested amounts are forfeited.

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