Department of Labor

WHAT YOU SHOULD KNOW ABOUT YOUR PENSION RIGHTS

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U.S. Department of Labor
Pension and Welfare Benefits Administration
1995

CONTENTS

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.