Question

Mike just started working for a company that maintains a defined benefit retirement plan. If Mike terminates his employment within the first two years, he forfeits his retirement. If he stays for three years, he will be entitled to receive 20% of the funds provided to him in the account. If he is employed with the company for 6 years, he will be entitled to receive 80% of the funds.

What type of vesting schedule is used at Mike's company?

Answer 1

According to the Mike´s company benefits, the vesting schedule used is graded.

Step-by-step explanation:

A vesting schedule is a benefit program provided by a company to encourage its employees´ loyalty through providing them unconditioned property rights over their retirement funds and/or shares after a certain labored period.

This program is detailed through percentages that are stablished according to the set types of vesting periods terms as follows:

1. Graded vesting schedule which increasingly vests over the determined worked time.

2. Cliff vesting schedule which after a employees´specific time working enables him/her to full property of his/her assets.

But if the employees´ pre-stablished working period is not fullfilled the company is not required to meet the vesting schedule originally set and could buy back shares.

Companies and employees validate this agreement writing a vesting certificate or letter which will ensure that the transfer will be made from part to part accordingly.