When is an employee's account considered to be fully vested?

An employee's account is considered to be fully vested after one year of service because this is a common vesting schedule used by many 401(k) plans. Vesting refers to the employee's right to the contributions made by their employer, meaning they have an ownership stake in those funds.

Typically, plans may take a graded or cliff vesting approach. In the case of a cliff vesting approach, an employee must complete a certain period of service, such as one year, before they gain full rights to all employer contributions. Once the one-year threshold is reached, the employee is considered fully vested, and they can retain the full amount of those contributions even if they leave the company shortly thereafter.

Other choices also address aspects of contributions but do not sufficiently capture the conditions under which full vesting occurs. For instance, contributions made by the employee don’t inherently guarantee full vesting of employer contributions. Similar reasoning applies to eligibility for retirement benefits, as being eligible does not equate to full vesting status. Hence, the focus on service duration aligns with the standard vesting qualifications outlined in 401(k) plans.