Cliff Vesting: What Does It Mean?

Cliff vesting is a vesting schedule where you own 0% of your employer's contributions until a set date, then 100% all at once. For ESOPs, 401(k) matches, and other defined contribution plans, federal law caps the cliff at three years of service. If you leave before reaching the cliff, you forfeit those employer contributions entirely.

It's called a cliff because ownership jumps straight from nothing to everything, with no partial steps in between. This differs from graded vesting, where you earn ownership a little at a time. If you're weighing a job change, check your vesting date first, since waiting a few weeks could mean keeping thousands of dollars.