Pension Vesting

What is Pension Vesting? It's when an employee has earned a pension, from an employer, due to years of service worked.

This is the employer's portion of the pension, regardless of whether the employee continues to work until retirement or not. In 2002, the basic vesting guidelines were:

  • 3 years service = 100% vested
  • 6 years service: after 2 yrs of service, 20% vested, 3 yrs = 40%, 4 yrs = 60%, 5 yrs= 80%, and 6 yrs is 100% vested.

However, those are only guidelines and many employers set their own vesting requirements. My employer had 8 year vesting.

The reason pension vesting is SO important -- you might take another job just 2 weeks before you are vested... losing a lifetime monthly pension. Yikes! It might be years away, or just days away -- just know what that vesting date is before you make these huge lifetime changing decisions!

If this is a Defined Benefit pension plan, there may be a “deferred retirement” benefit due. For example, maybe you leave employment after ten years of service, you could either: (1) refund your contributions and forfeit your lifetime pension OR (2) you could leave your monies in the fund, and years later, maybe age 60, you'd return to collect a monthly lifetime pension based on the ten years worked.

If this was a Defined Contribution pension plan, the six year guideline above might appear. As the employer is contributing towards your DC account, you get a percentage, if you leave early, of that fund.