Pension Plans Under Federal Law
Few investments are more important than the one you have in your retirement plan. The average American relies on savings for 18 years after retirement, so it is essential that the administrators of this plan maintain high integrity in managing the money.
Participants in retirement plans have certain rights that are governed by Federal law. Similarly, the people who sponsor your retirement plan also have rights and responsibilities. Most are spelled out by a law called the Employee Retirement Income Security Act of 1974 (ERISA).
ERISA sets minimum standards for retirement plans in private industry. ERISA specifies when employers must allow employees to become participants, how long employees have to work before getting a nonforfeitable benefit, and whether spouses have survival rights. Most of the provisions of ERISA are effective for plan years beginning on or after January 1, 1975.
The government does not require employers to establish retirement plans. It only requires that employers who do have plans meet certain minimum standards. The law also 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.
- 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 of 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, the Pension Benefit Guaranty Corporation.