Certified Plan Sponsor Professional (CPSP) Practice Exam

A vesting schedule in which participants must be fully vested after six years is called a?

1. Immediate vesting schedule

2. Cliff vesting schedule

3. Graded vesting schedule

4. Partial vesting schedule

The correct answer is: Graded vesting schedule

A vesting schedule in which participants must be fully vested after six years is best categorized as a graded vesting schedule. In a graded vesting schedule, employees gradually obtain percentage ownership of their employer's contributions to their retirement plan over a specified period, such as several years. In this case, while the specifics of incremental ownership percentages over the six years aren’t provided, the crucial detail is the stipulation that participants achieve full vesting by the end of that time frame. This structure contrasts with other vesting options. An immediate vesting schedule would indicate that participants are fully vested from the moment they begin participating in the plan, providing no delay in ownership. A cliff vesting schedule refers to a situation where participants become fully vested all at once after a certain period (for example, three years); there would be no incremental ownership during that time. Lastly, a partial vesting schedule is not a commonly used term in these contexts, as it does not clearly define how or when vesting occurs. Therefore, given the requirement of full vesting after six years, graded vesting is the most accurate description of this scenario.