Investments are important in your retirement plan. Because the average American will depend on their savings for 18 years after retirement, it is essential that you understand what your rights and responsibilities under your retirement plan.
People who participate in retirement plans have certain rights which are governed by federal law [US Code, Title 29, Section 1001 et seq]. They also have responsibilities. Similarly, people who sponsor your retirement plan have rights and responsibilities. Most are detailed in a federal law called Act Security Retirement Income Employee (Employee Retirement Income Security Act, ERISA) in 1974. This article explains some of the important features of this law.
For example, the article describes the function of the different federal agencies in regulating the plans. Describes the obligations of the employer (or other agents of the plan) with regard to providing information about the plan and specifies what information should be available automatically at regular intervals and, in many cases, for free. It also highlights the importance of keeping you informed of any changes to the operating rules of the plan.
This article tells you what the general requirements to be eligible to access the plan, including the time-old should have as an employee before becoming a participant. Important concepts such as the accumulation of benefits and the acquisition of the right to access their benefits are explained. The article also answers common questions about how changes in their employment status could affect your retirement benefits, such as job separation or return to their jobs after a passive period. And discusses the potential impact on your plan mergers, acquisitions and plant closures.
Here are some other important features include:
- A description of the fiduciary duties of its plan to invest their money wisely and penalties for using or trust administered improperly their money.
- An explanation of the rules that will require your employer to provide the funds to your pension plan, as well as a description of the penalties for employers who do not meet the minimum requirements properly fund contributions.
- Instructions for Filing the claim of a retirement benefit and how to appeal to any claim denial reviewed.
- The information contained in the following pages answer the most common questions about retirement plans.
- However, remember that this article is a simplified summary of the rights and responsibilities of participants, not a legal interpretation of ERISA.
ERISA and Pension Plan
This section explains the purpose of the Law on Income Security Employee Retirement, what it covers and what is excluded from coverage. Mention what plans are exempt from the law and what plans are administered by it. The following questions are addressed:
- What is the Law of Income Security Employee Retirement?
- What retirement plans are covered by ERISA?
- How does the law protect the assets of a plan?
- What are SEP plans, SIMPLE plans, profit sharing plans and stock bonus plans?
- What are the 401 (k) and ESOP plans?
- What is the role of federal agencies?
What is ERISA?
The Law on Income Security Retirement Employees (ERISA) of 1974 is a federal law that sets minimum standards for pension plans in the private sector. For example, if your employer offers a plan, ERISA specifies when you can start to participate, how long to work before they can have an irrevocable interest in its benefits, how long they may be absent from work before it can affect its benefits and if your spouse has the right to access some of their profits in the event of your death. Most provisions of ERISA are effective for plan years beginning on or after January 1, 1975.
No employer is required by ERISA to establish a retirement plan. This only requires that those who establish plans meet certain minimum standards. In general, the law does not specify the amount of money that must be paid to a participant for profit.
ERISA does the following:
- It requires plans to provide participants with information about the plan, which includes important information about plan features and providing funds. The plan must provide certain information periodically and automatically. Some of this information is freely available and not otherwise.
- It sets minimum standards for participation, vesting, benefit accrual and providing funds. The law defines the amount of time a person must work before being eligible to participate in the plan, benefits accumulate and have an irrevocable right to such benefits. The law also sets out detailed rules concerning the provision of funds, which require plan sponsors to provide sufficient funds for your plan.
- Responsibility requires plan fiduciaries. In general, ERISA defines a fiduciary as any person or entity engaged in an authority or discretionary control over the administration of the assets of a plan, including any person or entity that provides investment advice to plan. Fiduciaries who do not comply with the principles of conduct could be responsible for restitution of losses to the plan.
- Les gives participants the right to sue for benefits and breaches of fiduciary duties.
In the event that a benefit plan is terminated, guarantees payment of certain benefits through a federally authorized, known as Benefit Guaranty Corporation Pension (Pension Benefit Guaranty Corporation, PBGC) corporation.
ERISA also sets standards for health plans and other benefits provided by the employer, although such plans are not discussed in this article.
What are the plans of Defined Benefit and Defined Contribution Plans?
Generally speaking, these are two types of pension plans: defined benefit plans and defined contribution plans. A defined benefit plan provides a specific monthly benefit at retirement. According to the plan, this specific monthly benefit can be an exact dollar amount, such as $ 100 per month when you retire. Or, more commonly, it may calculate a benefit through a plan formula that takes into account factors such as salary and service, for example, 1 percent of the average of the last five years of employment salary for each year of service his employer.
A defined contribution plan, on the other hand, does not offer a specific amount of benefits when you retire. In these plans, you or your employer (or both) contribute to your individual account under the plan, sometimes with a fixed rate, as 5 percent of their annual profits. These contributions generally are invested on their behalf. Ultimately, you receive the balance in your account, which is based on contributions plus or minus gains or losses on investment. The value of your account will vary due to changes in the value of their investments. Examples of defined contribution plans include 401 (k) plans, 403 (b), the stock ownership plans for employees and profit sharing plans. The general rules of ERISA apply to each of these types of plans, although some special rules also apply. To determine which type of plan offered by your employer, ask your plan administrator or read the summary plan description.
A pension plan is a defined contribution plan that requires a fixed annual contribution to your individual account by your employer. Because the plan defined contribution pension requires these regular contributions, this is subject to certain rules on the provision of funds and other.
What are the plans for Simplified Employee Pension (SEP)?
Your employer may sponsor a plan simplified employee pension (Simplified Employee Pension Plan, SEP). SEP plans are a means of saving for retirement relatively simple. A SEP plan allows employers to make contributions to tax individual retirement accounts (individual retirement account, IRA) traditional employee ownership advantages. SEP plans are subject to minimum reporting requirements and disclosure.
As an employee with a plan to establish a SEP IRA to accept contributions from their employer. As a general rule, your employer may contribute annually up to 25 percent of their salary or $ 40,000 (the lowest amount) to a SEP plan.
As of January 1, 1997, employers can no longer offer a type of SEP SEP plan known as salary reduction plan. However, if an employer had in place a salary reduction SEP plan at December 31, 1996, it may continue to allow contributions by salary reduction plan. These amounts are subject to adjustment in the cost of living in future years.
The participants in the SEP plan may also need to earn at least $ 450 (in 2003) to make salary reduction contributions. Employees generally are allowed to contribute the amount is the lesser of $ 12,000 or 25 percent of their pay (to $ 200,000) in 2003. Employees over 50 can make an additional complementary contribution of $ 2,000 in 2003. That number increases in increments $ 1,000 to the limit of $ 5,000 in 2006.
Since 1997, employers may offer another type of plan that allows contributions by salary reduction, SIMPLE IRA plan.
[alert-note]Note: For archived documents in the Labor Department, you may contact the following address: US Department of Labor, EBSA Public Disclosure Facility, Room N-1513, 200 Constitution Avenue, NW, Washington, DC 20210; or, call: 202.693.8673.[/alert-note]
What are the plans with matching contributions Savings Incentive Employees (SIMPLE IRA) Small Business?
The plan matching contributions to employee savings incentive (savings incentive match plan for employees, SIMPLE IRA) small business provides companies with fewer than 100 employees to offer an affordable way to provide retirement benefits through wage reductions employees and then match these contributions (similar to a 401 [k]).
Any employer with fewer than 100 employees who earned $ 5,000 or more during the previous calendar year are eligible to deliver a SIMPLE IRA plan. However, an employer who currently sponsor other retirement plan, generally speaking, can not sponsor a SIMPLE IRA plan.
Also, SIMPLE IRA plans may be sponsored by most organizations, including C corporations, S corporations, partnerships and individual companies. Related employers (businesses under common control, for example) are considered individual employers.
Eligible employees can contribute up to $ 8,000 in 2003 (an amount which gradually increases to reach $ 10,000 in 2005) through payroll deductions. Complementary provisions allow employees to over 50 make an additional contribution of $ 1,000 in 2003, the limit increases $ 500 every year to reach $ 2,500 in 2006.
When employers start offering these plans have two options for where IRA contributions are deposited:
The employer may choose the financial institution that will receive all contributions under the plan. In this case, employees will have the right to transfer contributions to a SIMPLE IRA plan at another financial institution at no cost or penalties.
Each employee may initially choose which financial institution will receive the contributions. In this case, the employee has no right to transfer to another financial institution contributions no cost or penalties.
What are the Profit Sharing Plans and Actions Plans Bonus?
A profit-sharing plan or stock bonus plan are defined contribution plans where the plan may provide, or the employer may determine annually, how much will be contributed to the plan (earnings or any other source). The plan has a formula to assign each participant a part of each annual contribution. A profit-sharing plan or stock bonus plan may include a 401 (k).
What are the 401 (k)?
Your employer can establish a defined contribution plan that is a cash deal or deferred, usually called 401 (k). You can choose to defer receipt of a portion of his salary, which, instead, is supplied to the 401 (k) as a contribution in their name and before taxes. Sometimes the employer may match your contributions. There are special rules governing the operation of a 401 (k). For example, there is a dollar limit that applies to the amount you can choose to defer each year. The dollar limit is $ 12,000 in 2003, with annual increases in increments of $ 1,000 to the limit of $ 15,000 in 2006. Other limits the amount that can be contributed on your behalf may apply. For example, if you paid a high salary, you may have limits as far as participating in the common plan employees. Your employer must tell you about the limits that may apply to you.
As with other types of retirement plans, 401 (k) can allow complementary clauses for employees over 50 years. The additional amount in 2003 is $ 2,000 and increase in increments of $ 1,000 to the limit of $ 5,000 in 2006.
While a 401 (k) is a retirement plan, you may access funds from the plan before retirement. For example, if an active employee, possibly the plan allows borrow from the plan. Moreover, it is likely that the plan will let you do a withdrawal due to a difficulty, usually the funds you contributed. the sponsor may recommend to participate in the plan, but can not make their elective deferrals are a condition for receiving other benefits, except in the case of complementary contributions.
What Are Stock Ownership Plans for Employees (ESOP)?
The stock ownership plans for employees (employee stock ownership plans, ESOPs) are a type of defined contribution plan in which investments are made primarily in employer stock. Congress authorized the creation of the ESOP as a way to encourage corporate involvement of employees.
What is the role of the Department of Labor when regulating the Retirement Plans?
The Labor Department enforces Title I of ERISA, which, in part, sets out the rights and responsibilities of participants and duties of trustees. However, some plans are not covered by the protections of Title I. They are:
- federal, state or local government plans, including plans of certain international organizations;
- certain plans offered through a church or a religious association;
- plans are kept only to comply with state law for compensation for industrial accidents, unemployment insurance or disability insurance;
- plans to remain outside the United States primarily for non-resident foreigners;
- plans unfunded supplemental benefits, ie, plans that are maintained solely to provide contributions or above allowable for tax incentives benefits plans.
Security Administration Employee Benefits (Employee Benefits Security Administration, EBSA) Labour Department is the agency responsible for enforcing regulations governing the conduct of plan administrators, investment of the assets of the plans, reporting and disclosure of plan information, fulfilling the fiduciary provisions of the law, and the rights and responsibilities of workers on the benefits.
What other federal agencies regulate these retirement plans?
The Internal Revenue Service of the Treasury Department is responsible for ensuring compliance with Internal Revenue Code, which establishes the rules for operating a retirement plan “tax incentives”, including requirements for funds and acquisition of rights. A plan “tax incentives” may offer special tax benefits both the employer sponsoring the plan and participants receiving retirement benefits. The IRS has a toll-free assistance to taxpayers regarding plans employees whose number is 877.829.5500.
Guaranty Corporation Pension Benefit (Pension Benefit Guaranty Corporation, PBGC) is a nonprofit corporation created by the federal government to guarantee payment of certain pension benefits under defined benefit plans that are canceled by not have enough money to pay benefits. The contact of the PBGC is: 1200 K Street, NW, Washington, DC 20005M. Phone: 202.326.4000.
Your Right to Access Information About the Plan
This section describes the disclosure requirements of retirement plans. Documents describing the plan administrator must make available, the information must include these documents and alternative sources of information. The following questions are addressed:
- What information does the plan to offer?
- What is a summary plan description and how often you should receive it?
- Where can you get the annual financial reports and other documents of the plan?
- What sanctions can be assessed in the event that the plan administrator does not provide certain documents?
What information does the Plan required to disclose?
ERISA requires that plan administrators (“the people running plans”) will provide written the most important things you need to know about your retirement plan. The plan administrator should provide a regular and automatic some of these data. Others are available on request, free of charge or photocopy expense. The request must be in writing.
One of the most important documents is entitled to a summary of the plan called “summary plan description” or SPD. The plan administrator has a legal obligation to provide the SPD free and automatically when it becomes a participant in a retirement plan covered by ERISA or a beneficiary receiving benefits under that plan. The summary description of the plan is an important document that tells you about giving you the plan and how it works. It tells you when to begin to participate in the plan, how your service and its benefits are calculated, when acquires the right to access your benefits, you will receive payment when and how, and how to file a claim for benefits. Please read the summaries of their plan to learn about the specific clauses that apply in your case description. If a plan is unchanged, you should be informed, either through a summary description of the revised plan or by a separate document, called summary of essential amendments, which must also be provided free of charge.
In addition to the summary plan description, each year, the plan administrator must automatically provide a copy of the summary annual report of the plan. This is a summary of the annual financial reports that most pension plans must file with the Department of Labor. These reports are filed on government forms called Form 5500. The summary annual report is available for free. For more information about the assets of the plan, you can ask the plan administrator a copy of the full annual report.
If you can not get the summary plan description, the summary annual report or the annual report from the plan administrator, you could get a copy for a nominal charge photocopy writing to the following address: Department of Labor, EBSA, Public Disclosure Room, Room N-1513, 200 Constitution Avenue, NW, Washington, DC 20210. In order to locate your plan documents, be sure to provide enough information to help EBSA to identify the document, as the plan name, and city and state where it is located, whenever relevant to the document.
If you have information demonstrating that the plan assets are being managed or misused, call EBSA toll-free number to 1.866.444.EBSA and ask to speak with a representative of the regional office nearest you, or, examine the list of regional offices in www.dol.gov/ebsa.
On the next page you will find a list and description of the documents should be available. If the plan administrator refuses to provide requested documents and the reasons they control, a court may impose a penalty of up to $ 110 per day. The Labor Department does not have the authority to impose such a sanction.
What documents are available through other federal agencies?
The Internal Revenue Service is available for public inspection documents some plans. These documents include requests that are filed retirement plans for compliance with federal requirements to receive tax incentives, certain organizations filed applications to determine if they qualify for the tax exemption and the responses of IRS to these requests. For information on the documents available, contact the Internal Revenue Service at the following address: Internal Revenue Service Public Access Reading Room, PO Box 795, Ben Franklin Station, Washington, D.C. 20044; or, call 202.622.5164.
If you terminate your employment relationship and is entitled to a retirement benefit for which you are not eligible until later, the plan will take care of providing this information to the Internal Revenue Service, who, in turn, will inform the Administration Social Security (Social Security Administration SSA). The plan should also provide you with that information. In a request, the Social Security Administration will tell you if you are informed of their right to receive a deferred benefit under a plan. For information about how to make these requests, call 1.800.772.1213 (toll-free). SSA will provide this information automatically when you apply for Social Security benefits. However, it is your responsibility to keep the Plan Administrator informed of any change of address or name once you stop working in order to ensure you receive the retirement benefit it deserves.
Accumulation Benefit and Vesting
This section describes the ERISA rules regarding eligibility, benefit accrual and vesting. Addresses the following questions:
- What age and service requirements may impose a plan for eligibility?
- What are the benefits accrued?
- What is vesting?
- How long can it take to acquire the rights?
Will you receive any benefits from your retirement plan if your employment relationship ends before he can acquire the rights?
Getting Credit Services
ERISA sets rules for how employers should measure the service rendered by employees to determine how the rules of eligibility, benefit accrual and vesting apply. In general, ERISA defines a period of service as 1,000 hours of service during a period of 12 months. Different rules apply when the service account for the purpose of determining eligibility, benefit accrual and vesting.
Basically, a plan has three methods from which you can choose whether you should be credited one year of service for participation, vesting and, in some circumstances, accumulation of benefits: the general method to account for the service, a method of simplified equivalence or elapsed time method. See your summary plan description to find out which methods does your plan.
Who needs to be allowed to participate in the Retirement Plan Your Employer?
Generally speaking, if your employer offers a plan that covers his position, you should be allowed to participate if they have attained 21 years of age and have completed one year of service. Even if you work part-time or seasonal, it can not exclude the plan due to age or service if it meets this standard for the service. Should be allowed to begin participating in the plan before the start of next year the plan or 6; months after meeting membership requirements, whichever comes first. However, you are aware that your employer may offer one or more plans that cover different groups of employees or may exclude certain categories of employees from coverage under any plan. For example, your employer may sponsor a plan for salaried employees and one for unionized employees; Or you may not belong to the group of employees that the employer defines as covered by a plan.
ERISA imposes certain other rules regarding participation. Depend on the type of employer for whom you work, the type of plan it offers and its age. For instance:
- If you were greater when hiring employees, it can not be excluded from participation in the plan because of the age, just because you’re close to retirement.
- If at the time of admission to the plan, will acquire immediately and completely, and irrevocably, the right to access their “benefits”, the plan may require you to complete two years of service before being eligible to participate in the plan.
- However, 401 (k) can not require you to complete more than 1; year of service before being eligible to participate.
- If you work for a tax-exempt educational institution and you acquire the right to access the benefits of his plan after gaining 1; year of service, the plan may require you to be 26 years (instead of 21) to participate in the plan.
- If your employer offers a SEP plan, you should be allowed to participate if he has served for
Getting Legal Assistance with Labor Rights Issue
Employees have many rights at work established by both federal and state laws. If you believe your rights have been violated in the employment context, the best for their interests may contact a lawyer specializing in labor law, who will explain your options and protect your legal rights.