Dictionary Definition
vested adj : fixed and absolute and without
contingency; "a vested right"
User Contributed Dictionary
English
Adjective
Derived terms
Verb
vested- past of vest
Extensive Definition
In law,
vesting is to give an immediately secured right of present or
future enjoyment. One has a vested right to an asset that cannot be
taken away by any third party, even though one may not yet possess
the asset. When the right, interest or title to the present or
future possession of a legal estate can be transferred to any other
party, it is termed a vested interest. The concept can arise in any
number of contexts, but the most common are inheritance law and retirement
plan law. In real estate to vest is to create an entitlement to
a privilege or a right. For example, one may cross someone else’s
property regularly and unrestrictedly for several years, and that
person’s right to an easement becomes vested. The
original owner still retains the possession, but can no longer
prevent the other party from crossing.
Inheritance law
Some bequests do not vest immediately upon death of the testator. For example, many wills specify that an heir who dies within a set period (such as 60 days) is not to inherit, and further specify how the corresponding share is to be distributed. This is generally done to obviate disputes over the precise time of death, and to avoid paying taxes twice in rapid succession should multiple members of a family die in the wake of a disaster. Such a bequest does not vest until the expiration of the specified period, because the actual heir cannot be determined with certainty.It is also possible to give a person, A, a life
interest in a property, with the remainder
to go to another person or persons, B. If the beneficiary of the
remainder cannot yet be known, then the remainder is said not to
have vested, and the remainder is said to be
contingent. This may happen with entailed
estates,
or when property is left in trust to care for a child or relative
without heirs. (See trust law for
details.)
Employee rights
Retirement plans
Vesting is an issue in conjunction with employer contributions to an employee stock option plan, or to a retirement plan such as a 401(k), annuity or pension plan.A vested right is "an absoluted right; when a
retirement plan is fully vested, the employee has an absolute right
to the entire amount of money in the account." It is a "basic right
that has been granted, or has accrued, and cannot be taken away.
Example: one's right to a vested pension."
The portion vested cannot be reclaimed by the
employer, nor can it be used to satisfy the employer's debts. Any
portion not vested may be forfeited under certain conditions, such
as termination of employment. The portion invested is often
determined pro-rata.
For retirement plans in the United
States, employees are immediately 100% vested in their own
salary deferral contributions. For employer contributions, the
employer has limited options under the
Employee Retirement Income Security Act (ERISA) to delay the
vesting of their contributions to the employee. For example, the
employer can say that the employee must work with the company for
three years or they lose any employer contributed money, which is
known as cliff vesting. Or it can choose to have the 20% of the
contributions vest each year over five years, known as graduated
vesting.
Choosing a vesting plan allows an employer to
selectively reward employees that remain employed for a period of
time. In theory, this allows the employer to make greater
contributions than would otherwise be prudent, because the money
they contribute on behalf of employees goes to the ones they most
want to reward.
Ownership in startup companies
Small entrepreneurial companies usually offer grants of common stock or positions in an employee stock option plan to employees and other key participants such as contractors, board members, and major vendors. To make the reward commensurate with the extent of contribution, encourage loyalty, and avoid spreading ownership widely among former participants, these grants are usually subject to vesting arrangements.Vesting of options is straightforward. The
grantee receives an option to purchase a block of common stock,
typically on commencement of employment, which vests over time. The
option may be exercised at any time but only with respect to the
vested portion. The entire option is lost if not exercised within a
short period after the end of the employer relationship. The
vesting operates simply by changing the status of the option over
time from fully unexercisable to fully exercisable according to the
vesting schedule.
Common stock grants are similar in function but
the mechanism is different. An employee, typically a company
founder, purchases stock
in the company at nominal price shortly after the company is
formed. The company retains a repurchase
right to buy the stock back at the same price should the employee
leave. The repurchase right diminishes over time so that the
company eventually has no right to repurchase the stock, i.e. the
stock becomes fully vested.
Vesting periods are usually 3-5 years for
employees, but shorter for Board members and others whose expected
tenure at a company is shorter. The vesting schedule is most often
a pro-rata
monthly vesting over the period with a six or twelve month
cliff.
In the case of both stock and options, large
initial grants that vest over time are preferable to periodic
smaller grants because they are easier to account for and
administer, they establish the arrangement up-front and are thus
more predictable, and subject to some complexities and limitations
the value of the grants and holding period requirements for tax
purposes are set upon the initial grant date, giving a considerable
tax advantage to the employee.
Profit-sharing
Profit-sharing
plans are usually not vested, although in some cases a plan may
essentially serve as a pension by allowing a limited amount of
vesting should the employee retire or leave on good terms after an
extended period of employment.
Vesting arrangements and terminology
A vesting period is a period of time an investor
or other person holding a right to something must wait until they
are capable of fully exercising their rights and until those rights
may not be taken away.
In many cases vesting does not occur all at once.
Specific portions of the rights grant vest on different dates over
the duration of the vesting period. When part of a right is vested
and part remains unvested, it is considered partly vested.
In the case of partial vesting, a vesting
schedule is a table or chart showing the portion of a right that is
vested over time. Most typically the schedule provides for equal
portions to vest on periodic vesting dates, usually once per day,
month, quarter, or year, in stair-step fashion over the course of
the vesting period. There is often a cliff by which the first few
steps in the graph are missing, so that there is no vesting at all
for a period (usually six or twelve months in the case of employee
equity), after which there is a cliff date upon which a large
amount of vesting occurs all at once. Some arrangements provide for
accelerated vesting, by which all or a major portion of the
unvested right vests all at once upon the occurrence of a specified
event such as a termination of employment by the company or
acquisition of the company by another. Less commonly, the vesting
schedule may call for variable grands or subject to conditions such
as reaching milestones or employee performance.
Vested rights doctrine in Zoning law
The vested rights doctrine is the rule of zoning law by which "an owner/developer is entitled to proceed in accordance with the prior zoning provision 'where there has been a substantial change of position, expenditures or incurrence of obligations made in good faith by an innocent party under a building permit or in reliance upon the probability of its issuance.' "See also
Synonyms, Antonyms and Related Words
appareled, arrayed, attired, bedecked, breeched, capped, chausse, clad, cloaked, clothed, coifed, confirmed, costumed, decked, deep-dyed, deep-engraven,
deep-fixed, deep-grounded, deep-laid, deep-rooted, deep-seated,
deep-set, deep-settled, dight, disguised, dressed, dyed-in-the-wool,
embedded, embossed, endued, engrafted, engraved, entrenched, established, etched, firmly established,
garbed, garmented, gowned, graven, habilimented, habited, hooded, implanted, impressed, imprinted, indelibly
impressed, infixed,
ingrained, ingrown, invested, inveterate, inwrought, liveried, long-established,
mantled, old-line, on a
rock, on bedrock, pantalooned, raimented, rigged out,
robed, rooted, set, settled, shod, shoed, stabilized, tired, togged, tricked out, trousered, vestmented, well-established,
well-founded, well-grounded, well-set, well-settled