What Does "Vested" Mean?

Maggie Worth

The word "vested" is generally used to refer to something in which the owner has complete and permanent ownership. It is often used in conjunction with benefits, such as stock options. A key nuance of something that is vested is that it cannot be taken away from the owner, except in specific situations such as a divorce settlement or criminal conviction in which the owner's assets are stripped.

A "vested priest" is one who has been fully ordained.
A "vested priest" is one who has been fully ordained.

The most common use of the word is probably in relation to retirement contributions. In this case, it refers to an employee's permanent ownership of all contributions to the fund, both employee-paid and employer-paid. Usually, the employee owns his own portion of the contributions from the beginning. Many employers require an employee to work for a specified period of time before he takes full ownership of the employer-paid portion of the contributions.

A suit with a vest worn under the jacket may be called a "vested suit".
A suit with a vest worn under the jacket may be called a "vested suit".

Some companies use a system of partial vesting, meaning that an employee gains ownership of a progressively larger portion of employer-contributed funds as he reaches pre-set benchmarks. For example, he may own none of the employer funds during his first year of employment, gain 25 percent on his first anniversary, 50 percent on his second anniversary and be fully-vested on his third anniversary. Retirement plans in which the employee is immediately fully vested for both types of contributions are often called "safe harbor" plans. A similar situation arises with stock options and profit-sharing dollars that might require an employee to work for a specified amount of time before taking ownership.

Other common uses of the word include "vested rights," which are inalienable rights attained by birth or merit. Additionally, a "vested interest" refers to a party's concern over the success of a business, project, or product due to a monetary or other type of investment. The inventor of a product might have such an interest in seeing it sold on the open market because he has invested his time in talent in the development of the item. His financial backer will have a vested interest in seeing the product sold because he has invested funds in its development.

The word does have alternate meanings that are used less frequently. One such meaning is "clothed" or "robed," specifically when used to describe priests and other religious figures who wear distinctive clothing associated with their callings. Also, a "vested priest" is one who has been fully ordained. Another meaning refers specifically to a clothing ensemble that includes an actual vest. A three-piece suit that includes pants, a jacket, and a vest could be called a "vested suit."

Vesting is commonly an incremental process that is based on the length of time that the employee has been with the company.
Vesting is commonly an incremental process that is based on the length of time that the employee has been with the company.

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