South Carolina Life and Health Practice Exam

What is the minimum vesting period for a defined benefit plan under ERISA?

1. One year

2. Five years

3. Three years

4. Two years

The correct answer is: Five years

The minimum vesting period for a defined benefit plan under the Employee Retirement Income Security Act (ERISA) is indeed five years. This means that employees must work for at least five years before they have a non-forfeitable right to their pension benefits, assuming they do not leave the company prior to that period. This rule is designed to ensure that employees have a minimum period of service to qualify for benefits, thus encouraging long-term employment with the organization. Vesting is an important concept in retirement plans, as it determines when an employee earns the right to their benefits based on their length of service. Under ERISA, plans can offer different vesting schedules, such as cliff vesting or graded vesting, but the mandatory minimum period after which employees are entitled to their benefits is set at five years. This helps to balance the interests of both employers and employees.