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Vesting periods are the period of time involved in achieving full rights or privileges associated with a retirement or profit-sharing program offered by an employer. The overall vesting period is normally divided into a number of incremental periods, with each period reflecting an additional amount of time that the company continually employs the employee. The vesting period may vary from one company to another, although vesting procedures in all cases normally have to comply with government regulations.
Many vesting periods begin with the original date of employment. However, there are a couple of variations on the start date for vesting. For some companies, an employee may commence the vesting period after successfully completing the first calendar year of employment. In other instances, the vesting period may begin as soon as the employee completes his or her ninety-day probation and is considered to be a permanent employee.
It is not unusual for an employer to provide a fixed amount of vesting for each year that the employee remains with the company. For example, many employee stock ownership plans are structured to allow an employee to receive a ten to twenty percent vestment for each calendar year of service. This will mean that the employee will have to remain in the employ of the company for a period of five to ten years before achieving full vesting in the plan.
Generally, once the full vesting period is complete and the employee is considered to be fully vested, any accrued benefits will be available to the employee when he or she leave the company for any reason. The employee often has the chance to roll over the value into a new plan with a new employer, receive the benefits in one lump sum, or a series of payments over a specified period of time if the balance in the plan is quite high. If the plan is a stock plan, the company in effect will buy back shares in the employee’s account, and reallocate them to other shareholders enrolled in the plan.