What is the vesting requirement for a 3-year cliff plan?

In a 3-year cliff vesting plan, employees do not earn any rights to their employer’s contributions until they have completed a full three years of service. At the end of this three-year period, they become fully vested, meaning they secure full ownership of the employer’s contributions to their 401(k) plan. This structure encourages employee retention, as those who leave the company before reaching the three-year mark will forfeit any employer contributions.

The immediate vesting option does not align with the definition of a cliff vesting schedule, as it allows employees to access employer contributions right away. Linear vesting over six years would indicate a gradual earning of benefits, which is also not representative of a cliff vesting structure. A lack of any vesting requirement entirely contradicts the premise of having a vesting schedule, as it would imply no conditions to gain rights to employer contributions. Thus, a 3-year cliff plan mandates that vesting occurs once the employee reaches the end of three years of service.