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All About Cliff Vesting Schedules

Cliff Vesting Gives You Permanent Ownership of Your Employer's Matching Contributions by a Set Date

By David Fisher

(LifeWire) - A cliff vesting schedule is a way of determining when workers gain permanent ownership of -- or are vested in -- their employer's matching contributions to their retirement plans.

More than 44% of the companies surveyed in 2007 by the human resources firm Hewitt Associates reported that they give their employees permanent ownership immediately. But others say they stretch the time out by using a tool like a cliff vesting schedule to encourage employees to stick around.

Under a cliff vesting schedule, employees cannot keep any of an employer's matching contributions if they leave before a certain date. But once that date arrives, they are 100% vested in all of the matching contributions.

Employers can't dangle the carrot forever: Federal law puts a three-year limit on cliff vesting schedules. Stay longer than that, and Uncle Sam says you get to keep the change.

Workers are always 100% vested in their own contributions and in any growth their accounts earn.

Not all employers offer matching contributions. But if they do, the amount of the match and its vesting schedule must be spelled out in each plan's governing documents, which must be made available to all workers upon request.

LifeWire, a part of The New York Times Company, provides original and syndicated online lifestyle content. David Fisher is a freelance writer based in Bend, Ore. In addition to 25 years as an editor and reporter, he has worked as a professional financial adviser.

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