Definition of "Vesting"

The right of an employee to all or a portion of the benefits he or she has accrued, even if employment terminates. Employee contributions, as in a 401(k) plan, always are fully vested. Employer contributions vest according to a schedule defined by the plan and are usually based on years of service.

The right an employee acquires over time through length of service with a company to receive employer-contributed benefits from a pension fund, profit-sharing plan or other qualified plans or trusts. Following the passage of the Tax Reform Act of 1986, an employee automatically becomes 100% vested after five years of service or 20% a year beginning the third year of employment and 100% after seven years.