ERISA – Defined Benefit and Pension Plans

Taber Financial Services Inc. offers Florida defined benefit and pension plans for any size group. Let us help you setup a powerful incentive for your employees such as a 401K, profit-sharing, or pension plan.

What is ERISA?

The Employee Retirement Income Security Act of 1974, or ERISA, protects the assets of millions of Americans so that funds placed in retirement plans during their working lives will be there when they retire. ERISA is a federal law that sets minimum standards for pension plans in private industry. For example, if an employer maintains a pension plan, ERISA specifies when an employee must be allowed to become a participant, how long they have to work before they have a non-forfeitable interest in their pension, how long a participant can be away from their job before it might affect their benefit, and whether their spouse has a right to part of their pension in the event of their death. ERISA does not require any employer to establish a pension plan.

ERISA does the following according to the United States Department of Labor:

  • 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 non-forfeitable 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 plan is terminated, through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation.

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 participants a specified monthly benefit at retirement.

A defined contribution plan, on the other hand, does not promise a specific amount of benefits at retirement. The participant, or the employer (or both) contribute to the participant’s individual account under the plan, sometimes at a set rate, such as 5 percent of their earnings annually. These contributions generally are invested on the participant’s behalf. The participant will ultimately receive the balance in their account, which is based on contributions plus or minus investment gains or losses. The value of the account will fluctuate due to changes in the value of 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.

We have more than 25 years of experience helping businesses establish employee benefit plans, give us a call (239) 394-1800 today.

We look forward to developing a lasting business relationship and serving your employee benefit planning needs. Give us a call anytime.