Employee Pension Rights
Learning about your pension rights is important in your retirement planning, and no one is too young to make this plan. If you participate in a retirement plan, you should want to know all of the plan details. You should review documents that describe the plan, and that spells out your participation rights. You will also want to know the status of your account if you contribute to the plan, and even if you don’t contribute you will want to know the projected pension you will receive from the plan. The summary plan description is one of the essential documents for you to review. You should also understand how your termination would affect your pension. You should also learn how the pension benefit is calculated.
The individual benefit statement will tell you if you are vested and your accrued benefits. It will also tell you the benefits that will be accrued when you reach age 65. Employees have no legal right to benefits that are not vested, so understanding the term “vested” is important. It means that your interest in the plan is nonforfeitable and cannot be taken away. The plan will describe the period of time an employee must work before vesting begins. However, federal law requires 100% vesting after five years or under a schedule where a percentage is vested each year with 100% being vested after seven years. It is also important to know that being 100% vested does not mean that you are entitled to the full pension you would receive if you worked until age 65. Vested means that you will receive at retirement the total amount accumulated when you terminate your employment or retire. Any funds you have contributed to the retirement plan will always be 100% vested, and these funds will figure into the calculation of your retirement benefit.
Employee pension accounts receive some protection from the Employee Retirement Income Security Act of 1974 (ERISA). ERISA is a federal law that sets the standards for pensions established in the private industry. This law specifies when an employee can be a participant and how long they have to work before they accrue a nonforfeitable interest in their pension. ERISA also requires employers to fund adequately the pension plans they establish. You can read much more about ERISA at webapps.dol.gov/dolfaq/go-dol-faq.asp?faqid=225.
Your employer can terminate their pension plan at any time, but they must follow the rules established by the Pension Benefit Guaranty Agency (PBGA) which is an agency of the U.S. Government. The rules require that employees are to be notified 60 days prior, and their options must also be identified.The PBGA also insures your pension should your employer not be able to pay you. Your Summary Plan Description will state if your plan is backed up by the PBGA. Your employer must provide you with an Annual Funding Notice which tells you how well the plan is funded.
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