Vesting definition
/What is Vesting?
Vesting is the process by which the rights to an asset pass to a recipient. The concept is most commonly used in reference to a pension plan, where an employee gains the right to future payments from the plan. For example, an employer offers 100% vesting in the employer matching of any employee payments made into a 401(k) retirement plan, but only after the employee has worked for the company for five years. In this example, five years is the vesting period.
Advantages of Vesting
The intent behind vesting is to retain employees for an extended period of time, thereby reducing the negative effects associated with employee turnover. This is an especially important issue when a business is trying to retain key employees that give it a competitive advantage.