What are the Vesting Rules for My Money Purchase/Profit Sharing Plan?

Different plans will have different vesting schedules, within regulatory guidelines. The IRS imposes certain rules on Money Purchase/Profit Sharing Plans, which includes vesting restrictions. Different employers might have totally different vesting schedules, as long as they satisfy the IRS rules.

Vesting means that the employer contributions to a plan become the property of the employee, and the employee will be allowed to keep ownership of those assets even if the employee changes jobs before retirement. ‘Graduated vesting’ or ‘cliff vesting’ may be used.

In a graduated vesting schedule, a certain additional percentage of the employer’s total contributed amount will be considered the employee’s property every year for a certain number of years, until the entire amount belongs to the employee, and all future contributions will be immediately vested.

In a cliff vesting schedule, no portion of the employer contributions will belong to the employee until a certain number of years have passed, such as 3 or 7 years, at which point the entire amount belongs to the employee.

How Does Vesting Work?
What are My Money Purchase/Profit Sharing Plan Investment Options?