ESOP Vesting
One of the most important things to ESOP participants is how much they get in their accounts. Because ESOPs are designed to benefit those employees who stick around, what goes into your account is earned over time, a process known as “vesting.”
Vesting is the process by which you accumulate a right to your account. By law, you generally must be 100% vested based on one of two schedules:
- No vesting at all in the first years, followed by a sudden 100% vesting after not more than three years of service (“cliff” vesting); or
- 20% vesting after the second year of service, with 20% more each year until 100% vesting occurs after the sixth year of service (“graded” vesting)
Some plans may vary, but these are the two most common vesting structures.
Ideas for using this month’s resource
- Incorporate into the onboarding process so new employee-owners can see how vesting works at your company
- Include in ESOP 101 presentations
Related resources
- This article covers the basics for ESOP participants.
- The Introduction to ESOPs book explains the rules, uses, benefits, and other aspects of an ESOP.