Q:

What is a vested interest in a retirement fund?

A:

Quick Answer

A vested interest in a retirement fund refers to the ability of an employee to gain access to funds in the retirement account at a later time. An employee has to wait for the vesting period to be over in order to gain access to the employer's contributions.

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Full Answer

A retirement fund may limit the amounts a contributor can withdraw each year once the vesting period is over. An employer can withhold contributions to an employee's retirement fund if the employee quits before the vesting period is over. Most management teams require employees to work for three to six years before the employees become fully vested. Other organizations require staffers to work for a specific number of hours each year during the vesting period in order for such years to count as part of the vesting period.

Plans that utilize cliff vesting allow laborers to become fully vested after meeting the set targets each year during the vesting period. Graded vesting allows employees to vest gradually over the years. For example, an employee may become 25 percent vested after the second year. An employee who leaves a cliff vesting plan before the vesting period is over gets none of the employer's contributions. An employee who leaves a graded vesting plan at 60 percent vesting gets 60 percent of the corporation's contributions.

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