What is a cliff vesting schedule typically characterized by?

A cliff vesting schedule is characterized by the fact that an employee must work for a specified period before becoming fully vested in their benefits, typically retirement contributions made by the employer. This means that employees do not earn any vested rights to their employer's contributions until they reach that designated period. Once that period is completed, the employee becomes completely vested in all employer contributions at once, which is why the concept is referred to as "cliff" vesting.

For instance, if the cliff vesting schedule is set for three years, the employee will not have any rights to the employer's contributions until they have worked for the organization for three full years. After these three years, they will retain 100% ownership of all the contributions made by the employer. This structure can encourage employees to stay with the company until they reach the vesting milestone, thereby aligning employee retention with the organization’s interests.

Immediate vesting would mean that employees start with full rights to their benefits from day one, while no vesting would indicate that employees never acquire rights to benefits, which is not applicable under cliff vesting. Gradual vesting over time implies that employees gain ownership incrementally during their service, which also contrasts with the defining feature of cliff vesting where