Confusion over vesting period and non-vested rights

[superstructure]

This may sound rather basic but I am having difficulty understanding this concept of vesting period and non-vested rights.

As far as I can see vesting of (usually retirement) rights appears to occur once an employee has worked for an employer for a certain number of years. Is the vesting period referring to the number of years before vesting starts or is the vesting period equal to the number of years of service minus the minimum number of years?

What are non-vested rights? Am I right in saying that this is typically equal to the total amount of employee contributions that gets refunded to the employee if he/she leaves before meeting the minimum number of years requirement?

Any help appreciated..

 

[Gresham Arnold]

Hi superstructure

These terms are not defined in either the ST4 or SA4 Glossary, but broadly speaking:

The vesting period refers to minimum period of service before the benefits vest ie the minimum period of service which an active member must complete before they become entitled to the benefits even if they leave service before retirement age.

In the UK, a vesting period of two years is common for pension benefits - if an individual ceases to be an active member of such a scheme before they have two years' service then they will not be entitled to a deferred pension.

Vested rights for active members are benefits to which he/she would unconditionally be entitled on leaving service. Vested rights for deferred pensioners are their preserved benefits.

I believe that non-vested rights are benefits which are building up but which have not yet vested. So, a pension that is building up for an active member who has less than two years' service would be a non-vested right.

Hope this helps