Is there a need to encourage employee loyalty through “vesting”?
The term ‘vesting’ is a very important concept for the employees (and employers) as it defines the rules as to when, and in what proportion, the benefit accrues to the employee. If an employee is fully vested they are entitled to the full benefit accredited to their account. Vesting can be determined on the basis of years of service or years of participation in the plan. In ‘Defined Contribution Plans’, any money invested by the employee (the employee contributions) will always accrue from the date of investment and will, therefore, be fully vested from inception of the plan. Any growth or loss on these employee contributions will be credited/borne by the employee. For the employee to benefit from the employer’s contributions, the employee would have to have been employed for a defined period of service or alternatively participated in the plan for a defined period. An example of a simple vesting period would be where an employee is employed for two years before being fully vested. Thi
