Is the 6-year grading schedule also referred to as the 2/20 rule?

The 6-year grading schedule is indeed referred to as the 2/20 rule in the context of certain retirement plan vesting schedules. This terminology applies primarily to how benefits become vested to employees over time. Specifically, the 2/20 rule indicates that employees earn two years of service-based vesting with a graduated schedule that continues for a total of six years.

In this framework, participants typically achieve 20% vesting after each of the first five years and 100% vesting after the sixth year of service. This phased approach incentivizes long-term employment and retention, as employees must stay with the organization to fully benefit from the retirement contributions.

Understanding this rule is crucial for plan administrators and employees alike, as it directly impacts the rights of participants in relation to their benefits within the retirement plan. Additionally, the nature of the schedule aligns with statutory regulations that govern vesting schedules in retirement plans, further reinforcing its relevance in fiduciary practices and compliance.