Definition of Cliff Vesting

In cliff vesting, the contributions of an employer to an employee's retirement account become the property of the employee in full after a specified amount of time. With cliff vesting, the funds that the employer contributes do not gradually become the employee's property, as with other retirement accounts.

When the account is fully vested (after the set period), the employee can then claim all of the funds that the employer has deposited. For example, an employer might match employee contributions to a 401k plan, but require that they work at least 5 years with the company before they can become fully vested. Until they have worked for at least 5 years, they can only claim those funds which they deposited themselves.

 

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