Retirement plans are employee benefit plans that are set up or maintained by an employer or a union that will provide income after the individual worker retires. There are different types of plans, including the 401(k) plan, and the defined benefit plan.
Most people who work in the private sector are covered by ERISA, which is the Employee Retirement Income Security Act. ERISA provides some protections for those who participate in retirement plans. In addition, the individuals who manage the plans have to meet conduct standards under the responsibilities that are specified under the law.
The retirement plan set up by your employer is an essential part of your financial security in the future. It’s important that employees understand how their plans work, and what benefits they will receive. Just as you keep track of bank accounts, you should keep track of your retirement benefits.
The people who are responsible for the oversight and management of retirement plans have to follow certain rules that cover the operation of the plans, handling the money in the plan, and watching over the firms that are hired to manage the money. In addition, you should also understand and monitor your benefits.
There are two major types of retirement plans, and they are described as defined contribution and defined benefit.
A defined benefit plan is funded by your employer, and it promises you a monthly dollar amount upon your retirement. Plans like this may state the benefit as a dollar amount, or may calculate it through various formulas.
A defined contribution plan doesn’t tell you that you’ll get a specific amount when you retire. Instead, you or your employer put money toward your account and then these monies are invested. Most of the time, you are responsible for choosing how the monies are invested. In some plans, your employer will match your contributions.
Employers are offering you a benefit when they open retirement plans for their employees. Federal law does not require any employers to offer a plan, and the law also does not prohibit them from doing away with a plan they already have. Of course, if you have monies invested in a plan that your company terminates, the funds you put it will be available for withdrawal, or for rollover to a different 401-k from another company.
The PBGC – Pension Benefit Guaranty Corporation – guarantees that certain retirement benefits will be paid to employees or retirees in most plans, if the plan is terminated and not enough money s left to pay all of its promised benefits.
Check with your Human Resources or Benefits Department at your company, to find out what type of retirement plan your company offers, and which one you signed up for when you hired on. Then keep an eye on the accounts so you can make sure that the money will be there for your retirement.
Click here for more information on ERISA disability and life insurance.
