This material is made available by an agency of the federal government.
Although it is intended for plan participants, it can also serve as a basic
pension plan guide for employers and others.
INTRODUCTION
CHAPTER 1
ERISA AND YOUR PENSION PLAN
What is ERISA?
What Are Defined Benefit And Defined Contribution
Pension Plans?
What Are Simplified Employee Pension Plans (SEPs)?
What Are Profit Sharing Plans Or Stock Bonus Plans?
What Are 401(k) Plans?
What Are Employee Stock Ownership Plans (ESOPs)?
What Is The Role Of The Labor Department
In Regulating Pension Plans?
What Other Federal Agencies Regulate Plans?
CHAPTER 2
YOUR RIGHT TO PLAN INFORMATION
What Information Is Your Plan Required To Disclose?
Sources Of Plan Information
What Documents Are Available At Other Federal Agencies?
CHAPTER 3
BENEFIT ACCRUAL AND VESTING
Earning Service Credit
Who Must Be Allowed To Participate In Your Employer’s
Pension Plan?
What Is Benefit Accrual And How Does It Work?
What Other Rights Are Protected As Part Of Your Accrued
Benefit?
Can Your Plan Reduce Future Benefits?
What Happens To Your Service Credit If You Leave Your
Job And Later Return?
What Happens To Your Benefit Accruals (And Your Pension
Payments) If You Retire And Later Go Back To Work?
What Is Vesting And How Does It Work?
May Plans Use Other Vesting Schedules?
CHAPTER 4
PAYMENT OF BENEFITS
When Can You Expect Payment Of Your Benefits?
When May Your Plan Permit You To Take Payment?
When Must You Take Payment?
In What Form Will Your Benefits Be Paid?
CHAPTER 5
PROVIDING SURVIVOR BENEFITS TO YOUR SPOUSE
What Happens To Your Benefits Upon Death?
What Is A Qualified Joint And Survivor Annuity?
What Is A Qualified Preretirement Survivor Annuity?
What Survivor Benefit Rules Apply To Most Defined
Contribution Plans (Such As 401(k) Plans)?
Where Can You Get More Information About QJSA And QPSA
Rights?
CHAPTER 6
MAKING A BENEFITS CLAIM AND FILING SUIT UNDER ERISA
How Do You Make A Claim For Benefits?
May You Sue Under ERISA?
What Is The Role Of The Department Of Labor If You Sue
Under ERISA?
May Your Employer Fire You For Asserting Your Rights
Under ERISA?
CHAPTER 7
DIVIDING YOUR PENSION FOR FAMILY SUPPORT
Can Your Pension Be Attached For Family Support?
What Requirements Must Be Met For A Domestic Relations
Order To Be “Qualified”?
CHAPTER 8
PROTECTING YOUR PLAN’S ASSETS FROM
MISMANAGEMENT AND MISUSE
What Protections Do The Fiduciary Rules Of ERISA
Provide?
When Can You Choose Your Own Investments?
CHAPTER 9
ERISA’S PROTECTIONS
AGAINST INADEQUATE PLAN FUNDING
What Are The Funding Standards For Plans?
CHAPTER 10
PROTECTING YOUR BENEFITS IN THE EVENT OF PLAN TERMINATIONS
AND MERGERS
Can A Plan Be Terminated?
What Happens If Your Plan Terminates Without Enough
Money To Pay The Benefits? Which Benefits Are
Guaranteed?
Is Your Accrued Benefit Protected If Your Plan Merges
With Another Plan?
LIST OF REGIONAL AND DISTRICT OFFICES
WHAT YOU SHOULD KNOW ABOUT THE PENSION LAW
INTRODUCTION
Few investments are more important than the one you
have in your pension plan. Because the average American
will rely on pension savings for 18 years after retirement,
it is essential that you understand your rights and
obligations under your pension plan.
Participants in pension plans have certain rights that
are governed by federal law. They also have obligations.
Similarly, the people who sponsor your pension plan also
have rights and obligations. Most are spelled out by a law
called the Employee Retirement Income Security Act of 1974
(ERISA). The purpose of this booklet is to explain some of
the most important features of this law.
This booklet explains, for example, the role of
different federal agencies in regulating pension plans. It
describes the obligations of your employer (or other
appropriate plan official) to provide you with information
about the plan, and tells you what information must be made
available automatically, at regular intervals, and, in many
cases, at no cost to you. It also points out the importance
of keeping informed of any changes in your plan’s rules of
operation.
This booklet tells you what is generally required to
become eligible for your pension plan, including how long
you may have to be an employee before becoming a
participant. Important concepts such as accruing benefits
and becoming vested in your pension are explained. The
booklet also answers common questions about how changes in
your employee status might affect your pension, such as
termination or returning to your job after an interruption
of employment. And it discusses the potential impact on
your pension plan of mergers, acquisitions and plant shut-
downs.
Other important features of this booklet include:
* A description of your plan fiduciary’s obligations to
invest your money prudently and the sanctions against
fiduciaries who misuse or mismanage your money.
* An explanation of the rules that require your
employer to adequately fund your pension plan, as
well as a description of the penalties for employers
who fail to comply with minimum funding requirements.
* Instructions on how to file a claim for a pension
benefit and how to appeal for a review of any denial
of your claim.
The information contained in the following pages
answers many of the most common questions about pension
plans. Keep in mind, however, that this booklet is a
simplified summary of participant rights and
responsibilities, not a legal interpretation of ERISA.
CHAPTER 1
ERISA AND YOUR PENSION PLAN
This chapter explains the purpose of the Employee Retirement
Income Security Act, what it covers, and what is excluded
from its coverage. It tells which plans are exempt from the
law and who administers it. The following questions are
addressed:
* What is the Employee Retirement Income Security Act?
* What pension plans are covered by ERISA?
* How does the law protect a plan’s assets?
* What are ESOPs and 401(k) plans?
* What are profit sharing plans, stock bonus plans, and
SEPs?
* What is the role of Federal agencies?
What is ERISA?
The Employee Retirement Income Security Act of 1974
(ERISA) is a federal law that sets minimum standards for
pension plans in private industry. For example, if your
employer maintains a pension plan, ERISA specifies when you
must be allowed to become a participant, how long you have
to work before you have a nonforfeitable interest in your
pension, how long you can be away from your job before it
might affect your benefit, and whether your spouse has a
right to part of your pension in the event of your death.
Most of the provisions of ERISA are effective for plan years
beginning on or after January 1, 1975.
ERISA does not require any employer to establish a
pension plan. It only requires that those who establish
plans must meet certain minimum standards. The law
generally does not specify how much money a participant must
be paid as a benefit.
ERISA does the following:
* Requires plans to provide participants with
information about the plan including important
information about plan features and funding. The
plan must furnish some information regularly and
automatically. Some is available free of charge, some is not.
* Sets minimum standards for participation, vesting,
benefit accrual and funding. The law defines how
long a person may be required to work before becoming
eligible to participate in a plan, to accumulate
benefits, and to have a nonforfeitable right to those
benefits. The law also establishes detailed funding
rules that require plan sponsors to provide adequate
funding for your plan.
* Requires accountability of plan fiduciaries. ERISA
generally defines a fiduciary as anyone who exercises
discretionary authority or control over a plan’s
management or assets, including anyone who provides
investment advice to the plan. Fiduciaries who do
not follow the principles of conduct may be held
responsible for restoring losses to the plan.
* Gives participants the right to sue for benefits and
breaches of fiduciary duty.
* Guarantees payment of certain benefits if a defined
benefit plan is terminated, through a federally
chartered corporation, known as the Pension Benefit
Guaranty Corporation.
ERISA also creates standards for welfare benefit plans,
but those plans are not discussed in this booklet.
WHAT ARE DEFINED BENEFIT AND DEFINED
CONTRIBUTION PENSION PLANS?
Generally speaking, there are two types of pension
plans: defined benefit plans and defined contribution plans.
A defined benefit plan promises you a specified monthly
benefit at retirement. The plan may state this promised
benefit as an exact dollar amount, such as $100 per month at
retirement. Or, more commonly, it may calculate a benefit
through a plan formula that considers such factors as salary
and service-for example, 1 percent of your average salary
for the last 5 years of employment for every year of service
with your employer.
A defined contribution plan, on the other hand, does
not promise you a specific amount of benefits at retirement.
In these plans, you or your employer (or both) contribute to
your individual account under the plan, sometimes at a set
rate, such as 5 percent of your earnings annually. These
contributions generally are invested on your behalf. You
will ultimately receive the balance in your account, which
is based on contributions plus or minus investment gains or
losses. The value of your account will fluctuate due to
changes in the value of your investments. Examples of
defined contribution plans include 401(k) plans, 403(b)
plans, employee stock ownership plans, and profit-sharing
plans. The general rules of ERISA apply to each of these
types of plans, but some special rules also apply. To
determine what type of plan your employer provides, check
with your plan administrator or read your summary plan
description (see p. 13).
A money purchase pension plan is a plan that requires
fixed annual contributions from your employer to your
individual account. Because a money purchase pension plan
requires these regular contributions, the plan is subject to
certain funding and other rules.
WHAT ARE SIMPLIFIED EMPLOYEE PENSION PLANS (SEPs)?
Your employer may sponsor a simplified employee pension
plan or SEP. SEPs are relatively uncomplicated retirement
savings vehicles. A SEP allows employers to make
contributions on a tax-favored basis to individual
retirement accounts (IRAs) owned by the employees. SEPs are
subject to minimal reporting and disclosure requirements.
Under a SEP, you as the employee must set up an IRA to
accept your employer’s contributions. As a general rule,
your employer can contribute up to 15 percent of your pay
into a SEP each year, up to a maximum of $30,000.
If you work for a company employing 25 or fewer people,
your employer may establish a salary reduction SEP. If your
employer has such a plan, in addition to any employer
contributions to your SEP, you may also elect to have SEP
contributions made on your behalf from your salary on a
before-tax basis, up to the lesser of 15 percent of your pay
or $9,240 in 1995. Your deferral contributions are added to
any employer contributions to determine the annual limit
($30,000 or 15% of your pay). Other limits may apply to the
amount that may be contributed on your behalf. State and
local governments and tax-exempt organizations are not
eligible to establish salary reduction SEPs.
WHAT ARE PROFIT SHARING PLANS OR STOCK BONUS PLANS?
A profit sharing or stock bonus plan is a defined
contribution plan under which the plan may provide, or the
employer may determine, annually, how much will be
contributed to the plan (out of profits or otherwise). The
plan contains a formula for allocating to each participant a
portion of each annual contribution. A profit sharing plan
or stock bonus plan may include a 401(k) plan.
WHAT ARE 401(k)PLANS?
Your employer may establish a defined contribution plan
that is a cash or deferred arrangement, usually called a
401(k) plan. You can elect to defer receiving a portion of
your salary which is instead contributed on your behalf,
before taxes, to the 401(k) plan. Sometimes the employer
may match your contributions. There are special rules
governing the operation of a 401(k) plan. For example,
there is a dollar limit on the amount you may elect to defer
each year. The dollar limit in 1995 is $9,240. The amount
may be adjusted annually by the Treasury Department to
reflect changes in the cost of living. Other limits may
apply to the amount that may be contributed on your behalf.
For example, if you are highly compensated, you may be
limited depending on the extent to which rank and file
employees participate in the plan. Your employer must
advise you of any limits that may apply to you.
Although a 401(k) plan is a retirement plan, you may be
permitted access to funds in the plan before retirement.
For example, if you are an active employee, your plan may
allow you to borrow from the plan. Also, your plan may
permit you to make a withdrawal on account of hardship,
generally from the funds you contributed. The sponsor may
want to encourage participation in the plan, but it cannot
make your elective deferrals a condition for the receipt of
other benefits, except for matching contributions.
The adoption of 401(k) plans by a state or local
government or a tax-exempt organization is limited by law.
WHAT ARE EMPLOYEE STOCK OWNERSHIP PLANS (ESOPs)?
Employee stock ownership plans (ESOPs) are a form of
defined contribution plan in which the investments are
primarily in employer stock. Congress authorized the
creation of ESOPs as one method of encouraging employee
participation in corporate ownership.
WHAT IS THE ROLE OF THE LABOR DEPARTMENT IN
REGULATING PENSION PLANS?
The Department of Labor enforces Title I of ERISA,
which, in part, establishes participants’ rights and
fiduciaries’ duties. However, certain 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 church or church association plans.
* Plans maintained solely to comply with state workers’
compensation, unemployment compensation or disability
insurance laws.
* Plans maintained outside the United States primarily
for non-resident aliens.
* Unfunded excess benefit plans-plans maintained solely
to provide benefits or contributions in excess of
those allowable for tax-qualified plans.
The Labor Department’s Pension and Welfare Benefits
Administration is the agency charged with enforcing the
rules governing the conduct of plan managers, investment of
plan assets, reporting and disclosure of plan information,
enforcement of the fiduciary provisions of the law, and
workers’ benefit rights.
WHAT OTHER FEDERAL AGENCIES REGULATE PLANS?
* The Treasury Department’s Internal Revenue Service is
responsible for ensuring compliance with the Internal
Revenue Code, which establishes the rules for
operating a “tax-qualified” pension plan, including
pension plan funding and vesting requirements. A
pension plan that is “tax-qualified” can offer
special tax benefits both to the employer sponsoring
the plan and to the participants who receive pension
benefits. The IRS maintains a taxpayer assistance
line for employee plans at (202) 622-6074 (1:30-4:00
p.m. Eastern Time, Monday-Thursday).
* The Pension Benefit Guaranty Corporation, PBGC, a
non-profit, federally-created corporation, guarantees
payment of certain pension benefits under defined
benefit plans that are terminated with insufficient
money to pay benefits. The PBGC may be contacted at
1200 K Street, N.W., Washington, D.C. 20005,
telephone (202) 326-4000.
CHAPTER 2
YOUR RIGHT TO PLAN INFORMATION
This chapter outlines the disclosure requirements of pension
plans. It describes the documents that a plan administrator
must make available to you, the information these documents
should contain and alternative sources for the information.
The following questions are addressed:
* What information does the plan have to provide
you?
* What is a summary plan description and how often
should you get it?
* Where can you get annual financial reports and other
plan documents?
* What penalties can be assessed if a plan
administrator does not provide certain documents?
WHAT INFORMATION IS YOUR PLAN REQUIRED TO DISCLOSE?
ERISA requires plan administrators-the people who run
plans-to give you in writing the most important facts you
need to know about your pension plan. Some of these facts
must be provided to you regularly and automatically by the
plan administrator. Others are available upon request,
free-of-charge or for copying fees. Your request should be
made in writing.
One of the most important documents you are entitled to
receive automatically when you become a participant of an
ERISA-covered pension plan or a beneficiary receiving
benefits under such a plan, is a summary of the plan, called
the summary plan description or SPD. Your plan
administrator is legally obligated to provide to you, free
of charge, the SPD. The summary plan description is an
important document that tells you what the plan provides and
how it operates. It tells you when you begin to participate
in the plan, how your service and benefits are calculated,
when your benefit becomes vested, when you will receive
payment and in what form, and how to file a claim for
benefits. You should read your summary plan description to
learn about the particular provisions that apply to you. If
a plan is changed you must be informed, either through a
revised summary plan description, or in a separate document,
called a summary of material modifications, which also must
be given to you free of charge.
In addition to the summary plan description, the plan
administrator must automatically give you each year a copy
of the plan’s summary annual report. This is a summary of
the annual financial report that most pension plans must
file with the Department of Labor. These reports are filed
on government forms called Form 5500 or 5500-C/R. The
summary annual report is available to you at no cost. To
learn more about your plan’s assets, you may ask the plan
administrator for a copy of the annual report in its
entirety.
If you are unable to get the summary plan description,
the summary annual report, or the annual report from the
plan administrator, you may be able to obtain a copy by
writing to the Department of Labor, PWBA, Public Disclosure
Room, Room N-5638, 200 Constitution Avenue, N.W.,
Washington, D.C. 20210, for a nominal copying charge. If
possible, provide the name of the plan, employer
identification number (a 9-digit number assigned by the IRS)
and the plan number (a 3-digit number, such as 002). If you
do not have this information, give the name of the plan and
the city and state.
If you have information that plan assets are being
mismanaged or misused, send details to the nearest regional
or district office of the Department of Labor. See pp. 46-
48 for a list of PWBA offices.
Following is a list and description of the documents
that must be made available to you. If a plan administrator
refuses to comply with your request for documents, and the
reasons for the delay are within his or her control, a court
may impose a penalty of up to $100 per day. The Department
of Labor does not have the authority to impose this penalty.
See Chapter 6 on your right to sue under ERISA to enforce
your rights.
SOURCE OF PLAN INFORMATION
Type of Document Who you can When you Your cost
get it from can get it
Summary Plan Plan Within 30 Reasonable
Description: Administrator days of Your charge
This summary of Request
your pension plan
tells you what Automatically Free
the plan provides within 90
and how it operates. days of your
becoming
covered under
the plan
Automatically Free
every 5 years
if your plan
is amended
Automatically Free
every 10 years
if your plan
has not been
amended.
Department Upon Request Copying
of Labor Charge
____________________________________________________________
Summary of Plan Automatically Free
Material Administrator within 210
Modifications: days after
This summarizes the end of
any changes to the plan year
your plan. For which the
plan has been
amended
Department Upon Request Copying
of Labor Charge
____________________________________________________________
Summary Annual Plan Automatically Free
Reports: This Administrator within 9
summarizes the months after
annual financial the end of
reports that the plan year,
most pension or 2 months
plans file with after the
the Department filing of the
of Labor. annual report
Upon Request Copying
Charge
____________________________________________________________
Latest Annual Plan Within 30 Reasonable
Report (Form Administrator days of a Charge
5500 Series): written
Annual financial request
reports that
most pension
plans file with
the Department
of Labor. Department Upon Request Copying
of Labor Charge
____________________________________________________________
Final Annual Plan Within 30 Reasonable
Financial Administrator days of a Charge
Report: This written
is the last request
financial
report filed
by a plan
that has been
terminated.
____________________________________________________________
Individual Plan Once every Free
Benefit Administrator 12 months
Statement:
Describes your
total accrued
and vested
benefits.
____________________________________________________________
Plan Document Plan Within 30 Reasonable
(or any other Administrator days of a Charge
documents under written
which the plan request
is established
or operated):
This includes, Available Upon Request Free
for example, for Inspec-
the plan tion at Your
document, Plan’s Office
collective
bargaining
agreement, or
trust agreement.
____________________________________________________________
Notice to Plan Annually Free
Participants Administrator
on Plan Funding
and PBGC
Guarantees when
a Plan is Less
than 90% funded.
____________________________________________________________
*Documents from the Labor Department can be obtained by
writing to the U.S. Department of Labor, PWBA, Public
Disclosure Facility, Room N5638, 200 Constitution Avenue,
N.W., Washington, D.C. 20210.
WHAT DOCUMENTS ARE AVAILABLE AT OTHER FEDERAL AGENCIES?
Documents for some plans are available for public
inspection at the Internal Revenue Service. These documents
include the applications filed by pension plans to determine
if they meet federal tax-qualification requirements,
applications filed by certain organizations to determine if
they qualify as tax-exempt, and the Internal Revenue Service
responses to these applications. Get in touch with the
Internal Revenue Service Freedom of Information Reading
Room, P.O. Box 795, Washington, D.C. 20044, tel. (202) 622-
5164, for information on available documents.
If you terminate employment and you have a vested
pension benefit (see Chapter 3 for an explanation of vested
benefits) that you are not eligible to receive until later,
that information will be reported by your plan to the
Internal Revenue Service, which, in turn, will inform the
Social Security Administration. This information must also
be provided to you by the plan. The Social Security
Administration will tell you, upon request, whether you were
reported as having a deferred vested benefit under any plan;
for information about making these requests, call 1-800-772-
1213 (toll-free). The Administration will automatically
give you this information when you apply for social security
benefits. Nevertheless, it is in your interest to keep the
plan administrator informed about any change of address or
name change after you leave employment to assure that you
will receive the pension benefit due to you.
CHAPTER 3
BENEFIT ACCRUAL AND VESTING
This chapter describes ERISA’s rules for eligibility,
benefit accrual, and vesting. It addresses the following
questions:
* What age and service requirements may a plan impose
on eligibility?
* What are accrued benefits?
* What is vesting?
* How long may it take to become vested?
* Will you receive any benefits from your pension plan
if you leave employment before becoming vested?
EARNING SERVICE CREDIT
ERISA establishes rules for how employers must measure
employees’ employment service to determine how the
eligibility, benefit accrual, and vesting rules apply.
ERISA generally defines a year of service as 1,000 hours of
service during a 12-month period. Different rules apply to
counting service for purposes of eligibility, benefit
accrual, and vesting.
A plan basically has a choice among three methods for
determining whether you must be credited with a year of
service for participation, vesting, and, in some
circumstances, benefit accrual: the general method of
counting service, a simplified equivalency method, or the
elapsed time method. Refer to your summary plan description
to see which method is used by your plan.
Who Must Be Allowed To Participate in Your
Employer’s Pension Plan?
Generally speaking, if your employer provides a plan
that covers your position, you must be permitted to become a
participant if you have reached age 21 and have completed 1
year of service. Even if you work part-time or seasonally,
you cannot be excluded from the plan on grounds of age or
service if you meet this service standard. You must be
permitted to begin to participate in the plan no later than
the start of the next plan year or 6 months after meeting
the requirements of membership, whichever is earlier. You
should be aware, however, that your employer may provide one
or more plans covering different groups of employees or may
exclude certain categories of employees from coverage under
any plan. For example, your employer may sponsor one plan
for salaried employees and another for union employees, or
you may not be within the group that the employer defines as
covered by the plan.
ERISA imposes certain other participation rules. They
depend on the type of employer for whom you work, the type
of plan your employer provides, and your age. For example:
* If you were an older worker when you were hired, you
cannot be excluded from participating in the plan on
grounds of age just because you are close to
retirement age.
* If upon your entry into the plan, your benefit will
be immediately fully “vested,” or nonforfeitable (see
p. 23), the plan can require that you complete 2
years of service before you become eligible to
participate in the plan. 401(k) plans, however,
cannot require you to complete more than one year of
service before you become eligible to participate.
* If you work for a tax-exempt educational institution
and your plan benefit becomes vested after you earn 1
year of service, the plan can require that you be at
least age 26 (instead of age 21) before you can
participate in the plan.
* If your employer maintains a SEP, you must be
permitted to participate if you have performed
services for the employer in 3 of the immediately
preceding 5 years.
What Is Benefit Accrual And How Does It Work?
When you participate in a pension plan, you accrue
(earn) pension benefits. Your accrued benefit is the amount
of benefit that has accumulated or been allocated in your
name under the plan as of a particular point in time. ERISA
generally does not set benefit levels or specify precisely
how benefits are to accumulate.
Plans may use any definition of service for purposes of
benefit accrual as long as the definition is applied on a
reasonable and consistent basis. Service for purposes of
benefit accrual generally takes into account only the years
of service you earn after you become a plan participant, not
all service you have performed since you were hired by your
employer. Employees who work less than full time, but at
least 1,000 hours per year, must be credited with a pro rata
portion of the benefit that they would accrue if they were
employed full-time.
To illustrate: If a plan requires 2,000 hours of
service for full benefit accrual, then a participant who
works 1,000 hours must be credited with at least 50 percent
of the full benefit accrual.
A special rule applies to SEPs: all participants who
earn at least $400 (in 1995) in compensation from their
employers are entitled to receive a contribution or, if the
SEP is a salary reduction SEP, to elect to make a
contribution.
Since ERISA generally does not regulate the amount of
your benefit, you can estimate how much pension you are
building up only by examining the summary plan description
or the plan document. These documents should explain how
you earn service credit for full benefit accrual each plan
year.
What Other Rights Are Protected As Part Of Your
Accrued Benefit?
Your accrued benefit includes more than just the amount
of benefit you have accumulated. Your plan provides you
with various rights and options, some of which are protected
rights attached to your benefit amount. As a general rule,
protected rights cannot be reduced or eliminated, nor can
they be granted or denied at your employer’s discretion. If
a plan feature you care about has been eliminated, this
section is designed to help you determine if it was a
protected right or not.
The rights that are protected include optional forms of
benefit payments, early retirement benefits, and retirement-
type subsidies.
* Optional forms of benefit payment. An example of an
optional form of benefit that your plan may provide
is the right to receive payment of your benefits in a
lump sum payment rather than as an annuity.
* Early retirement benefit. ERISA does not require a
pension plan to provide participants with the option
to retire earlier than at the plan’s normal
retirement age, but if such an option is offered, a
plan generally may not be amended to eliminate the
right to take such an early retirement with respect
to benefits accrued before the amendment.
* Retirement-type subsidy: Retirement-type subsidies
are also a protected part of your benefit and cannot
be eliminated retroactively.
Certain important plan features are not protected, such
as a social security supplement, the right to direct
investments, the right to a particular form of investment,
the right to take a loan from a plan, or the right to make
employee contributions at a particular rate on either a
before- or after-tax basis.
Can Your Plan Reduce Future Benefits?
ERISA does not prohibit your employer from amending the
plan to reduce the rate at which benefits accrue in the
future. For example, a plan that pays $5 in monthly
benefits at age 65 for years of service up through 1995, may
be amended to provide that years of service beginning in
1996 will be credited at the rate of $4 per month.
If you are a participant in a defined benefit plan or a
money purchase plan, you must receive written notice of a
significant reduction in the rate of future benefit accruals
after the plan amendment is adopted and at least 15 days
before the effective date of the plan amendment. The
written notice must describe the plan amendment and its
effective date.
What Happens To Your Service Credit If You
Leave Your Job And Later Return?
A break in service can have serious consequences for
your pension if it extends for a long enough time and your
pension benefit is not yet fully vested. However, ERISA
does not permit your accrued benefit to be forfeited if you
have a short break in service. ERISA establishes rules
governing the circumstances under which a plan is required
to continue to credit a participant with service earned
before a break in service if the participant later returns
to employment. These rules are very technical, but in
general guarantee that your service credit cannot be
forfeited for absences shorter than 5 consecutive years. If
you need to take a leave of absence, you should carefully
examine your plan’s rules so that you do not inadvertently
and unnecessarily lose pension benefits you have accrued.
What Happens To Your Benefit Accruals (And Your Pension
Payments) If You Retire And Later Go Back To Work?
If you continue to work past normal retirement age
(without retiring), you continue to accrue benefits,
regardless of age. However, a plan can limit the total
number of years of service that will be taken into account
for benefit accrual for anyone under the plan. If you
retire and later go back to work with your employer, you
must be allowed to continue to accrue additional benefits,
subject to any such limit on total years of service credited
under the plan.
Plans that provide for the payment of early retirement
benefits may suspend payment of those benefits if you are
reemployed before reaching normal retirement age. However,
if the plan suspends payment of benefits before normal
retirement age, under circumstances that would not have
permitted a suspension after normal retirement age, and the
plan pays an actuarially reduced early retirement benefit,
the plan must actuarially recalculate your monthly payment
when you begin again to receive payments.
Under certain circumstances (described below), your
pension payments after you reach normal retirement age may
be suspended if you return to work. For example, ERISA
permits a multiemployer plan to suspend the payment of
normal retirement benefits if you return to work in the same
industry, the same trade, and the same geographical area
covered by the plan as when benefits commenced.
Before suspending benefit payments, however, the plan
must notify you of the suspension during the first calendar
month in which the plan withholds payments. The
notification must give you the information on why benefit
payments are suspended, a general summary and a copy of the
plan’s suspension of benefit provisions, a statement
regarding the Department of Labor regulations, and
information on the plan’s procedure under which you may
request a review of the decision to suspend benefit
payments. If most of this information is contained in the
plan’s summary plan description, the notification may simply
refer to the appropriate pages of the summary plan
description.
A plan that suspends benefit payments must advise you
of its procedures for requesting an advance determination of
whether a particular type of reemployment would result in a
suspension of benefit payments. If you are a retiree and
are considering taking a job, you may wish to write to the
administrator of your plan to ask if your pension benefits
would be suspended.
What Is Vesting And How Does It Work?
Vesting refers to the amount of time you must work
before earning a nonforfeitable right to your accrued
benefit. When you are fully “vested,” your accrued benefit
will be yours, even if you leave the company before reaching
retirement age. Generally, if you are employed when you
reach your plan’s “normal” retirement age (usually 65), you
will be fully vested. You also must be permitted to earn a
vested right to your accrued benefit through service as
described below.
You are always entitled to 100 percent vesting in your
own contributions and salary reduction contributions and
their investment earnings. However, if your employer
contributes to your accrued benefit (as most do) you may be
required to complete a certain number of years of service
with the employer before the employer portion of your
accrued benefit becomes vested. Thus, if you terminate
employment before working for a long enough period with your
employer, you may forfeit all or part of your accrued
benefit provided by your employer.
You must be permitted to earn vesting credit according
to a vesting schedule that is at least as generous as one of
the two following schedules. ERISA sets these standards as
a minimum for counting vesting service. Plans may provide a
different standard, as long as it is more generous than
these minimums. Check your summary plan description for a
description of your employer’s vesting schedule.
7-YEAR “GRADED” VESTING SCHEDULE
____________________________________________________________
Years of vesting service Percentage of your
you have completed accrued benefit that is
vested
____________________________________________________________
Less than 3 0%
At least 3 but less than 4 20%
At least 4 but less than 5 40%
At least 5 but less than 6 60%
At least 6 but less than 7 80%
At least 7 100%
____________________________________________________________
5-YEAR “CLIFF” VESTING SCHEDULE
____________________________________________________________
Years of vesting service Percentage of your
you have completed accrued benefit that is
vested
____________________________________________________________
Less than 5 0%
At least 5 100%
____________________________________________________________
With some exceptions, once you begin participating in a
pension plan, all of your years of service with the employer
maintaining the plan after you reached age 18 must be taken
into account to determine whether and the extent to which
your accrued benefits are vested, including service you
earned before you began to participate in the plan and
service you earned before the effective date of ERISA.
However, ERISA does allow plans to disregard certain
periods for purposes of determining an employee’s vesting
service. If you wish further details on what periods of
service may be disregarded, see your summary plan
description or the plan document to find out what periods
are counted in your plan.
When you receive a benefit statement, compare the
amount of your accrued benefit with the amount or percentage
of your vested benefit to determine its accuracy. If these
items are not clear from your benefit statement, ask your
plan administrator. The plan administrator may send you a
benefit statement each year. If not, you may request a
copy. In order to keep track of your vesting service, you
may want to keep records of your hire date, the date you
began participating in the plan, and the dates of any leaves
of absence that could affect your total service.
If the plan’s vesting schedule is changed after you
have completed at least 3 years of service, you have the
right to select the vesting schedule that existed prior to
the change for the entire length of your service, rather
than the new schedule.
May Plans Use Other Vesting Schedules?
Multiemployer plans can have a slower vesting schedule,
and top-heavy plans must have a faster vesting schedule. A
multiemployer plan is a plan to which several unrelated
employers are required to contribute under one or more
collective bargaining agreements. Participants in a
multiemployer plan who are covered by the collective
bargaining agreement may need to complete 10 years of
service to be fully vested, in accordance with the following
vesting schedule:
____________________________________________________________
Years of vesting service Percentage of your
you have completed accrued benefit that is
vested
____________________________________________________________
Less than 10 0%
At least 10 100%
____________________________________________________________
Plans are considered “top-heavy” if they are tax
qualified and more than 60 percent of the benefits accrue to
certain owners and officers, otherwise known as “key
employees.” This could, for example, occur in small
companies that have frequent turnover of rank-and-file
workers. In years in which a plan is top-heavy, you have
the right to both faster vesting and minimum benefits, if
you are not a key employee.
All benefits under a SEP must be fully vested at all
times.
CHAPTER 4
PAYMENT OF BENEFITS
This chapter outlines your rights to payment of your
benefits. The following questions are addressed:
* When will your benefits be paid?
* In what form will your benefits be paid:
As described in the previous chapter, ERISA sets rules
protecting your eligibility to participate, your accrual of
benefits, and your becoming vested under your pension plan.
ERISA also provides a variety of rights that you have as a
plan participant concerning when you may or must be
permitted to receive your benefits. This chapter describes
your payment rights.
When Can You Expect Payment Of Your Benefits?
ERISA provides specific rules governing when you may or
must begin receiving your pension benefits. First, ERISA
sets the latest date by which the plan must permit you to
begin receiving your benefit. Under this rule, payment must
begin by the 60th day after the end of the plan year in
which the latest of the following events occur:
(1) you reach age 65 or, if earlier, the normal
retirement age specified by your plan;
(2) the end of the 10th year after you began
participation in the plan ends; or
(3) you terminate your service with the employer.
Thus, for example, your plan must provide at a minimum
that you will be entitled to begin to receive your benefit
60 days after the end of the plan year in which you reach
age 65, if you began participation in the plan at least 10
years before that year.
Your plan may allow you to receive payment of your
benefit earlier than required by the above rule (and many
plans do, subject to rules described below). However, as
long as the present value of your vested accrued benefit is
greater than $3,500, the plan cannot force you to begin
receiving your benefit before you reach the age that is
generally considered normal retirement age (or age 62 if
later).
If the present value of your vested accrued benefit
under the plan is $3,500 or less, the plan may require you
to receive your benefit when it first becomes distributable,
such as when you terminate employment.
When May Your Plan Permit You To Take Payment?
ERISA provides rules governing the times at which a
pension plan may permit you to receive benefits. As these
limitations on “distribution events” for payment vary
depending on the type of pension plan, you should consult
your summary plan description for the specific events or
times that are the conditions under which you will be
entitled to receive your benefits. After the event occurs
that permits payment of your benefit, your plan may require
some reasonable period of time during which to calculate
your benefit and determine your payment schedule, or to
value your account balance and to liquidate any investments
in which your account is invested. The following are a few
general rules about possible distribution events for which
your plan may provide.
If your plan is a defined benefit plan or a money
purchase plan, it will set a normal retirement age, which is
generally the time at which you will be eligible to begin
receiving your vested accrued benefit. These types of plans
may permit earlier payments, however, either by providing
for “early retirement” benefits, for which the plan may set
additional eligibility requirements, or by permitting
benefits to be paid when you terminate employment, suffer a
disability, or die.
If your plan is a 401(k) plan, it may permit you to
take some or all of your vested accrued benefit when you
terminate employment, retire, die, become disabled, reach
age 59 1/2, or if you suffer a hardship.
If your plan is a profit-sharing plan or a stock bonus
plan, your plan may permit you to receive your vested
accrued benefit after you terminate employment, become
disabled, die, reach a specific age, or after a specific
number of years have elapsed.
Your plan’s summary plan description should describe
all of the rules applicable to any of the events that permit
distributions.
When Must You Take Payment?
ERISA also sets a date by which you must begin to
receive your benefits, regardless of your wishes or the
plan’s rules, if your plan is tax-qualified. This mandatory
beginning date is generally April 1 of the calendar year
following the calendar year in which you reach age 70 1/2.
ERISA provides rules for determining how much of your
accrued benefit you must then receive each year.
In What Form Will Your Benefits Be Paid?
With some very important limits, your plan can dictate
the forms in which you may receive your accrued benefit.
The protections that ERISA provides about form of benefit
payments vary (again) depending on whether you have a
defined benefit plan, money purchase plan, or other kind of
defined contribution plan. If you are covered under a
defined benefit plan or a money purchase plan, your benefit
must be available in the form of a life annuity, which means
you will receive equal periodic payments (e.g., monthly,
quarterly, etc.) for the rest of your life. If you are
married, your benefit must be available in the form of a
“qualified joint and survivor annuity.” (That form of
benefit payment is described in the next chapter, concerning
spousal rights to benefit payments.)
If you are covered under a defined contribution plan
that is not a money purchase plan, the plan may choose to
pay your benefits in a single lump sum payment, or in any
other form it chooses. If it offers a life annuity option,
however, and you choose that option, you and your spouse (if
any) will be protected by being offered a life annuity or a
joint and survivor annuity that satisfies the requirements
of ERISA.
CHAPTER 5
PROVIDING SURVIVOR BENEFITS TO YOUR SPOUSE
This chapter tells you what protections ERISA provides to
your surviving spouse if your benefit was vested upon your
death. The following questions are addressed:
* Which pension plans are required to offer survivor
annuities?
* What is a Qualified Joint and Survivor Annuity?
* What is a Qualified Preretirement Survivor Annuity?
* What rights does a spouse have under your pension
plan?
* Does your spouse have to agree to the form of pension
payment you elect?
* May you leave your survivor benefit to a beneficiary
other than your spouse?
WHAT HAPPENS TO YOUR BENEFITS UPON DEATH?
ERISA provides some protection to surviving spouses of
deceased participants who had earned a vested pension
benefit before death. The nature of the protection depends
on the type of plan and whether the participant dies before
or after payment of the pension benefit is scheduled to
begin, otherwise known as the annuity starting date. The
summary plan description, described in Chapter 2, will tell
you the type of plan involved and whether survivor annuities
or other death benefits are provided under the plan.
What Is A Qualified Joint and Survivor Annuity (QJSA)?
In a defined benefit plan or a money purchase plan, the
form of retirement benefit payment, unless you and your
spouse (if any) chose otherwise, must be a series of equal,
periodic payments over your lifetime, with a payment
continuing to your spouse for the rest of his or her life if
he or she survives you. The periodic payment to your
surviving spouse must be at least 50 percent, and not more
than 100 percent, of the periodic payment received during
your joint lives. This form of payment is called a
“qualified joint and survivor annuity” (QJSA).
If the plan provides other forms of benefit payment,
and you and your spouse want to waive your rights to receive
the QJSA and select one of the other payment forms
available, you can do so according to specified rules. You
and your spouse must receive a timely explanation of the
QJSA, your waiver must be made in writing within certain
time limits, and your spouse must give consent to the waiver
in writing witnessed by a notary or plan representative.
What Is A Qualified Preretirement Survivor
Annuity (QPSA)?
A survivor annuity must also be offered by a defined
benefit or money purchase plan if a married participant with
a vested benefit dies before he or she begins receiving
benefits. This survivor annuity is called a “qualified
preretirement survivor annuity” (QPSA), and ERISA specifies
how the QPSA is calculated. You and your spouse must be
given a timely explanation of the QPSA. You may only waive
the right to a QPSA in writing, and your spouse must consent
to the waiver of the QPSA in writing, witnessed by a notary
or plan representative.
What Survivor Benefit Rules Apply To Most Defined
Contribution Plans (Such As 401(k)Plans)?
Most profit sharing and stock bonus plans, like 401(k)
plans, generally need not offer a survivor annuity.
However, there are rules for such plans that protect the
spouse as beneficiary.
Before you begin to receive your benefits under such a
plan, your spouse is automatically presumed to be your
beneficiary. Thus, if you die before you receive your
benefits, all of your benefits will automatically go to your
surviving spouse. If you wish to select a beneficiary other
than your spouse, your spouse must consent in writing,
witnessed by a notary or plan representative. This protects
your spouse in the event of your death before any layout has
been made. When you reach a distribution date, however,
such as when you terminate employment or reach retirement,
you may choose, without your spouse’s consent, among any
optional forms of payment offered by the plan, including a
life annuity, if offered by the plan. If you choose a life
annuity, however, your spouse is then protected by QJSA
rules, and the benefit will be paid as a QJSA unless you and
your spouse consent to a different form, as outlined above.
Where Can You Get More Information About
QJSA And QPSA Rights?
ERISA and the Internal Revenue Code prescribe detailed
rules regarding the QJSA and QPSA rights. You may wish to
obtain from the Internal Revenue Service the following
publications on survivor annuities:
* IRS Publication 1565 - “Looking Out for #2: A Married
Couple’s Guide to Understanding Your Benefit Choices
at Retirement From a Defined Contribution Plan”
* IRS Publication 1566 - “Looking Out for #2: A Married
Couples’s Guide to Understanding Your Benefit Choices
at Retirement From a Defined Benefit Plan”
These rules reflect the law in effect for participants
who completed an hour of service (or paid leave) on or after
August 23, 1984. ERISA’s survivor annuity rules are
different if you are the surviving spouse of a participant
who left employment before that date.
CHAPTER 6
MAKING A BENEFITS CLAIM AND
FILING SUIT UNDER ERISA
This chapter outlines how and under what circumstances you
can make a benefits claim. It tells you what appeal
procedures to follow if your claim for benefits is denied,
and describes your rights to pursue a lawsuit. The
following questions are addressed:
* How do you file a claim for benefits?
* What do you do if your claim is denied?
* May you sue the plan?
* What are the grounds for legal action?
How Do You Make A Claim For Benefits?
Under ERISA you have a right to make a claim for
benefits due under a plan. ERISA requires all plans to have
a reasonable written procedure for processing your claims
for benefits and for appealing if your claim is denied. The
summary plan description (see Chapter 2) should contain a
description of your plan’s procedures. If you believe you
are entitled to a benefit from a pension plan, but your plan
fails to set up a claims procedure, you may present the
claim to the plan administrator.
If you make a claim for benefits that is denied, the
plan must notify you in writing - generally within 90 days
after receipt of the claim - of the reasons for the denial
and the specific plan provisions on which the denial is
based. If the plan denies your claim because the
administrator needs more information to make a decision, the
administrator must tell you what information is needed. Any
notice of denial must also tell you how to file an appeal.
If special circumstances require your plan to take more time
to examine your request, it must tell you within 90 days
that additional time is needed, why it is needed, and the
date by which the plan expects to make a final decision. If
you receive no answer at all in 90 days, this is treated the
same as a denial, and you can proceed to appeal.
You must be allowed at least 60 days to appeal any
denial. After receiving your appeal, the plan generally
must issue a ruling within 60 days, unless the plan provides
for a special hearing. If the plan notifies you that it
must hold a hearing, or that it has other special
circumstances, it may have an additional 60 days.
The plan must furnish you with a final decision on your
appeal and the reasons for the decision with references to
the relevant plan documents. If you disagree with the final
decision, you may then file a lawsuit seeking your benefit
under ERISA, as explained below. But courts generally
require that you complete all the steps available to you
under the claims procedure in a timely manner before you
seek relief through a lawsuit. This is called “exhausting
your administrative remedies.”
May You Sue Under ERISA?
As a plan participant or beneficiary, you may bring a
civil action in court to:
* Recover benefits due you and enforce your rights
under the plan.
* Get access to plan documents you requested in
writing. If your plan administrator does not supply
the plan documents within 30 days of your written
request, a court could find the plan administrator
personally liable for up to $100 per day (unless the
failure results from circumstances reasonably beyond
his or her control).
* Clarify your right to future benefits.
* Get appropriate relief from a breach of fiduciary
duty.
* Enjoin any act or practice that violates the terms of
the plan or any provision of Title I of ERISA, such
as the reporting and disclosure, participation,
vesting or funding, and fiduciary provisions, or to
obtain other equitable relief.
* Enforce the right to receive a statement of vested
benefits upon termination of employment.
* Obtain review of a final action of the Secretary of
Labor, to restrain the Secretary from taking action
contrary to ERISA, or to compel the Secretary to take
action.
* Obtain review of any action of the PBGC or its agents
that adversely affects you.
You may file a lawsuit under ERISA in a federal
district court. If you seek benefits or clarification of
your right to future benefits, you may file an alternative
suit in a state court. The court in its discretion may
order either party in the suit (you or the plan/plan
fiduciaries/plan sponsor) to pay reasonable attorney fees
and costs when a participant or beneficiary sues under
ERISA.
What Is The Role Of The Department Of Labor If
You Sue Under ERISA?
The Secretary of Labor may directly bring a civil
action under ERISA to enforce the fiduciary duty provisions
of ERISA. The Secretary also has limited authority to bring
a civil action to enforce ERISA’s participation, vesting,
and funding standards with respect to a tax-qualified plan.
In addition, the Secretary of Labor has discretion to
intervene in lawsuits filed in federal court to enforce
rights under ERISA. A participant or beneficiary who brings
an action in federal court claiming a breach of fiduciary
duty must provide a copy of the complaint to the Secretary
of Labor and the Secretary of the Treasury by certified
mail. It is not necessary to provide such notice to any
government agency if you bring a lawsuit solely to recover
benefits under the plan.
May Your Employer Fire You For Asserting Your Rights Under
ERISA?
ERISA prohibits employers from promising pensions and
then firing or disciplining workers to avoid paying a
pension. To that end, ERISA says it is unlawful for an
employer to discharge, fine, suspend, expel, discipline, or
discriminate against you or any beneficiary for the purpose
of interfering with the attainment of any right to which you
may become entitled under the plan or the law.
Also, employers cannot take any of these steps against
you for exercising any of your rights or prospective rights
under a plan or ERISA, or for giving information or
testimony in any inquiry or proceeding relating to ERISA.
Moreover, the use of force or violence to restrain, coerce,
or intimidate you for the purpose of interfering with your
rights or prospective rights, is punishable by a fine of up
to $10,000 and/or up to one year in prison.
CHAPTER 7
DIVIDING YOUR PENSION FOR FAMILY SUPPORT
This chapter describes the rights of the parties and the
obligations of the plan if a spouse, former spouse, child or
other dependent seeks a portion or all of your pension benefits. It addresses the following:
* What is a Qualified Domestic Relations Order?
* What is an alternative payee?
* When can an alternate payee receive payment under a
QDRO?
Can Your Pension Be Attached For Family Support?
In general, your pension benefits cannot be taken away
from you by people to whom you owe money. The law makes a
limited exception, however, when family support is at stake.
Thus, a state court can award part or all of your pension
benefit to your spouse, former spouse, child or other
dependent by issuing a qualified domestic relations order,
which must be honored by the plan. The person named in such
an order is called an alternate payee. The court’s order
can be in the form of a state court judgment, decree or
order, or court approval of a property settlement agreement.
What Requirements Must Be Met For A Domestic Relations Order
To Be “Qualified”?
When a plan receives a domestic relations order
purporting to divide pension benefits, it must first
determine whether the order is a qualified domestic
relations order (QDRO.) The order must relate to child
support, alimony, or marital property rights and be made
under state domestic relations law. To be “qualified,” the
order should clearly specify your name and last known
mailing address and the name and last known address of each
alternate payee. It also must state the name of your plan;
the amount or percentage-or the method of determining the
amount or percentage-of the benefit to be paid to the
alternate payee; and the number of payments or time period
to which the order applies. The order cannot provide a type
or form of benefit not otherwise provided under the plan and
cannot require the plan to provide an actuarially increased
benefit. And if an earlier QDRO applies to your benefit,
the earlier QDRO takes precedence over a later one.
In certain situations, a QDRO may provide that payment
is to be made to an alternate payee before you are entitled
to receive your benefit. For example, if you are still
employed, a QDRO could require payment to an alternate payee
to begin on or after your “earliest retirement age,” whether
or not the plan would allow you to receive benefits at that
time. If you are in the process of a divorce, and a QDRO is
being prepared for your family, you may wish to be sure that
the QDRO addresses whether a benefit is payable to an
alternate payee upon your death and the consequences of the
death of the alternate payee.
CHAPTER 8
PROTECTING YOUR PLANS’S ASSETS
FROM MISMANAGEMENT AND MISUSE
This chapter is about the responsibilities of fiduciaries.
Fiduciaries must act in accordance with ERISA guidelines and
the rules of your plan. The following questions are
addressed:
* How are the assets of your plan protected?
* What rules are the people managing plan assets
required to follow?
* What are the responsibilities of fiduciaries and
participants in plans where participants direct
investment of their own accounts?
What Protections Do The Fiduciary Rules Of
ERISA Provide?
ERISA protects your plan from mismanagement and misuse
of assets through its fiduciary provisions. ERISA defines a
fiduciary as anyone who exercises discretionary control or
authority over plan management or plan assets, anyone with
discretionary authority or responsibility for the
administration of a plan, or anyone who provides investment
advice to a plan for compensation or has any authority or
responsibility to do so. Plan fiduciaries include, for
example, plan trustees, plan administrators, and members of
a plan’s investment committee.
The primary responsibility of fiduciaries is to run the
plan solely in the interest of participants and
beneficiaries and for the exclusive purpose of providing
benefits and paying plan expenses. Fiduciaries must act
prudently and must diversify the plan’s investments in order
to minimize the risk of large losses. In addition, they
must follow the terms of plan documents to the extent that
the plan terms are consistent with ERISA. They also must
avoid conflicts of interest. In other words, they may not
engage in transactions on behalf of the plan that benefit
parties related to the plan, such as other fiduciaries,
service providers, or the plan sponsor.
Fiduciaries who do not follow these principles of
conduct may be personally liable to restore any losses to
the plan, or to restore any profits made through improper
use of plan assets. Courts may take whatever action is
appropriate against fiduciaries who breach their duties
under ERISA including their removal.
When Can You Choose Your Own Investments?
In some defined contribution plans, a group or an
individual makes all the investment decisions for the plan’s
assets. In certain defined contribution plans, however,
plan officials may decide to provide a number of investment
options, and they may ask you to decide how to invest your
account balance by choosing among those investment options.
The Department of Labor has established rules about
plans that permit participants to direct their own
investments. Under these rules, if, and only if, you truly
exercise independent control in making your investment
choices, plan officials will be excused from the fiduciary
responsibility for the consequences of your investment
decisions. A plan under which you in fact exercise
independent control over the investment of your individual
account is called a 404(c) plan (after section 404(c) of
ERISA). If you are a participant in a 404(c) plan, you are
responsible for the consequences of your investment
decision, and you cannot sue the plan officials for
investment losses that result from your decision.
You are entitled to receive a broad range of
information about the investment choices available under a
404(c) plan. Thus, a plan that intends to relieve plan
officials of fiduciary duties over investments must inform
you of that fact. Also, a 404(c) plan must give you
sufficient information about investment options under the
plan for you to be able to make informed decisions. The
information that you are entitled to receive without asking
includes the following:
* A description of each investment option, including
the investment goals, risk and return
characteristics.
* Information about designated investment managers.
* An explanation of when and how to make investment
instructions and any restrictions on when you can
change investments.
* A statement of the fees that may be charged to your
account when you change investment options or buy and
sell investments.
* Information about your shareholder voting rights and
the manner in which confidentiality will be provided
on how you vote your shares of stock.
*The name, address, and phone number of the plan
fiduciary or other person designated to provide
certain additional information on request.
CHAPTER 9
ERISA’S PROTECTIONS AGAINST
INADEQUATE PLAN FUNDING
This chapter is about the rules that require employers to
adequately fund their pension plans. The following
questions are answered:
* What rules govern how employers fund plans?
* Are there penalties for underfunding a plan?
* Are employers subject to sanctions if they
accidentally underfund a plan?
What Are The Funding Standards For Plans?
ERISA sets minimum funding rules to provide that
sufficient money is available to pay promised pension
benefits to you when you retire. Funding rules establish
the minimum amounts that employers must contribute to plans
in an effort to ensure that plans have enough money to pay
benefits when due. The rules are applicable primarily to
defined benefit plans and also to money purchase plans.
Defined benefit plans generally fund future benefits
over time. The plans consider probable investment gains and
losses and make assumptions about factors such as future
interest rates and potential workforce changes. ERISA
provides detailed funding rules to protect you from
financing methods that could prove inadequate to pay the
promised benefits when they are due.
ERISA provides severe sanctions against an employer who
fails to meet the funding obligations. Any employer who
fails to comply with the minimum funding requirements is
charged an exise tax on the amount of the accumulated
funding deficiency, unless the employer receives a waiver of
the minimum funding requirements. This tax is imposed
whether the underfunding was accidental or intentional.
Certain actions can also be taken by the Department of Labor
and the Pension Benefit Guaranty Corporation to enforce the
minimum funding standards.
In the case of defined benefit plans that are less than
90 percent funded, you must be notified each year about the
plan’s funding status and PBGC’s guarantees. This rule is
effective for plan years beginning after December 8, 1994.
CHAPTER 10
PROTECTING YOUR BENEFITS IN THE
EVENT OF PLAN TERMINATIONS AND MERGERS
This chapter describes what might happen to your benefits if
your employer decides to terminate or merge your pension
plan with another plan. It covers the following questions:
* What happens if your plan terminates without enough
money to pay the benefits?
* If your plan terminates before you are vested, will
you lose your benefits?
* Under what circumstances is your pension guaranteed
by the government?
* Can your benefits be reduced as the result of a
merger?
Can A Plan Be Terminated?
Although pension plans must be established with the
intention of being continued indefinitely, employers may
terminate plans. If your plan terminates or becomes
insolvent, ERISA provides you some protection. In a tax-
qualified plan, your accrued benefit must become 100 percent
vested immediately upon plan termination, to the extent then
funded. If a partial termination occurs in such a plan, for
example, if your employer closes a particular plant or
division that results in the termination of employment of a
substantial portion of plan participants, immediate 100
percent vesting, to the extent funded, also is required for
affected employees.
What Happens If Your Plan Terminates Without
Enough Money To Pay The Benefits? Which
Benefits Are Guaranteed?
If your terminated plan is a defined benefit plan
insured by the Pension Benefit Guaranty Corporation, PBGC
will guarantee the payment of your vested pension benefits
up to the limits set by law. Benefits that are not
guaranteed or that exceed PBGC’s limits may be paid
depending on the plan’s funding and on whether PBGC is able
to recover additional amounts from the employer. For
further information on plan termination guarantees, write to
the Pension Benefit Guaranty Corporation, Administrative
Review and Technical Assistance Department, 1200 K Street,
N.W., Washington, D.C. 20005, telephone (202) 326-4000.
If a plan terminates, and the plan purchases annuity
contracts from an insurance company to pay pension benefits
in the future, plan fiduciaries must take certain steps to
select the safest available annuity. Thus, in accordance
with Department of Labor guidance, the plan must conduct a
thorough search with respect to the financial soundness of
insurance companies that provide annuities, to better assure
the future payment of benefits to participants and
beneficiaries.
Is Your Accrued Benefit Protected If Your Plan Merges With
Another Plan?
Your employer may choose to merge your plan with
another plan. If your plan is terminated as a result of the
merger, the benefit you would be entitled to receive after
the merger must be at least equal to the benefit you were
entitled to receive before the merger.
Special rules apply to mergers of multiemployer plans,
which are generally under the jurisdiction of the PBGC.
LIST OF REGIONAL AND DISTRICT OFFICES
If you need further information, please write to the
nearest office of the Pension and Welfare Benefits
Administration.
If you live in... Please contact the following
office:
____________________________________________________________
Tennessee, North Carolina, PWBA Atlanta Regional Office
South Carolina, Georgia, Room 205, 1371 Peachtree St.,
Alabama, Puerto Rico, NE
Mississippi, Florida Atlanta, GA 30367
Tel. (404) 347-4090
or
PWBA Miami District Office
Suite 504, 111 N.W. 183rd St.
Miami, FL 33169
Tel. (305) 651-6464
____________________________________________________________
Rhode Island, Vermont, PWBA Boston Regional Office
Maine, New Hampshire, One Bowdoin Square, 7th Floor
most of Connecticut, Boston, MA 02114
Massachusetts, Central Tel. (617) 424-4950
and Western New York
____________________________________________________________
Northern Illinois, PWBA Chicago Regional Office
Northern Indiana, Suite 840, 401 South State St.
Wisconsin Chicago, IL 60605
Tel. (312) 353-0900
____________________________________________________________
Michigan, Kentucky, PWBA Cincinnati Regional
Ohio, Southern Indiana Office
Suite 210, 1885 Dixie Highway
Ft. Wright, KY 41011
Tel. (606) 578-4680
or
PWBA Detroit District Office
Suite 1310, 211 Fort St.
Detroit, MI 48226
Tel. (313) 226-7450
____________________________________________________________
Arkansas, Louisiana, New PWBA Dallas Regional Office
Mexico, Oklahoma, Texas Room 707, 525 Griffin St.
Dallas, TX 75202
Tel. (214) 767-6831
____________________________________________________________
Colorado, Southern Illinois, PWBA Kansas City Regional
Iowa, Kansas, Minnesota, Office
Missouri, Montana, Nebraska, City Center Square
North Dakota, South Dakota, 1100 Main, Suite 1200
Wyoming Kansas City, MO 64105
Tel. (816) 426-5131
or
PWBA St. Louis District Office
Room 338, 815 Olive St.
St. Louis, MO 63101
Tel. (314) 539-2691
____________________________________________________________
American Samoa, Arizona, PWBA Los Angeles Regional
Guam, Hawaii, Southern Office
California, Wake Island Suite 514, 790 East Colorado
Blvd.
Pasadena, CA 91101
Tel. (818) 583-7862
____________________________________________________________
Eastern New York, Southern PWBA New York Regional Office
Connecticut, Northern New Room 226, 1633 Broadway
Jersey New York, NY 10019
Tel. (212) 399-5191
____________________________________________________________
Delaware, Washington, D.C., PWBA Philadelphia Regional
Maryland, Southern New Office
Jersey, Pennsylvania, Room M300, Gateway Bldg.
Virginia, West Virginia 3535 Market St.
Philadelphia, PA 19104
Tel. (215) 596-1134
or
PWBA Washington District
Office
Suite 556, 1730 K St., NW
Washington, DC 20006
Tel. (202) 254-7013
____________________________________________________________
Alaska, Northern Cali- PWBA San Francisco Regional
fornia, Idaho, Nevada, Office
Oregon, Utah, Washington Suite 915, 71 Stevenson St.
P.O. Box 190250
San Francisco, CA 94119
Tel. (415) 744-6700
or
PWBA Seattle District Office
Room 860, 1111 Third Ave.
Seattle, WA 98101
Tel. (206) 553-4244
____________________________________________________________
Or, you may contact the Division of Technical Assistance &
Inquiries in the PWBA National Office at:
200 Constitution Ave., NW
Room N5625
Washington, DC 20210
Tel. (202) 219-8776