Pensions and 401(k)/403(b) plans

Pensions and 401(k)/403(b) plans

What is a pension plan?

A pension plan can provide you with a regular, regular income after you retire. Most of this income is based on your total length of service and your last year of employment. Since you know your monthly retirement income in advance, this pension plan is a so-called “defined benefit” plan. Except for the pension plans provided by the government, which require employees to contribute, usually the pension plans provided by private companies and unions do not require employee contributions.

What is a 401(k) plan?

401(k) plans are not pension plans or “defined benefit” plans. A 401(k) plan is a “defined contribution” plan offered by an employer or union to employees who can voluntarily make regular payments into their IRAs. Employers may provide matching contribution benefits based on employee contributions, which can be in cash or company stock. A 401(k) plan is both an investment account and a savings account. Therefore, 401(k) funds will not only accrue interest in the account, and the funds in the account will increase (or depreciate) the rate of return according to the investment strategy. Employers usually only restrict certain investment options, and employees bear all the risks themselves, so they should make informed investment decisions for their 401(k) accounts. The amount of money you receive when you retire will depend on the number of contributions and the return on your investment.

What is a 403(b) plan?

A 403(b) plan is similar to a 401(k) plan, but this plan is offered by a non-profit organization.

Does an employer have to set up a pension plan, 401(k), or 403(b) plan?

No, but if an employer sets up one of these schemes, the scheme is subject to government regulation.

What do I need to do to receive my pension?

You have to work for the same employer or union for a specified number of years before you can have a “vested” (meaning that all benefits belong to you). When you qualify for a “vested interest”, your pension benefits are also fully owned by you, of course, you must reach the retirement age of the pension plan to receive these benefits. If you die before retirement, your spouse and children over the age of 18 can receive your benefit (usually 50%), unless your spouse waives this right.

How can I know how much my pension can pay?

Each year, you can request a Personal Benefit Statement. Many employers automatically send this statement every year for insured employees.

After the new employer takes over the pension plan, how will the years I work for the old company count?

If the new employer continues to keep the old employer’s pension plan, your years of employment with the previous employer will still count towards the “vested benefit” period. The new employer may also choose not to keep the retirement plan.

How does a break during employment affect pensions?

Certain regulatory laws will determine whether you will lose the years of employment you have accrued. These legislations include several factors:

You have reached the “vesting” period before your job cessation period, so the years before and after your employment cessation period can be counted towards your pension benefits.

Before your work interruption period, you have not reached the “vesting” period, and your work interruption period is long, so the previous working years may be invalid.

What is an employment interruption?

If you work 1,000 hours or more in a year, that year can usually count towards the “acquired” period. (A full-time employee works about 2,080 hours per year.)

If you work between 501-999 hours in a year, that year will not count towards the “acquired” period. However, this period will not be counted as a “break-in service”.

If you work less than 501 hours in a year, that year will not count toward your “acquired” period, and in some cases, may invalidate your previously counted “acquired” years of employment.

If my pension plan rights are violated, what can I do to protect my rights?

Step 1: Gather and Review Your Information Documents

Useful documents to review include:

Summary Plan Description (SPD), a document explaining how the pension plan works;

personal benefit statement;

split files; and

Payroll

If you lose your plan benefit summary or personal benefit statement, please ask your “plan administrator” in writing to provide you with the required documents. (The plan administrator is legally responsible for managing your retirement plan and providing benefits to plan participants and beneficiaries. If you do not know who the plan administrator is, you can ask your employer to provide the administrator’s contact information.) In the written request letter, please indicate that you are making the relevant request under Chapter 104 of the Employee Retirement Income Security Act (ERISA). In the letter, list your legal name, work card number, date of birth, years of employment, and your return address and telephone number. Remember to date the letter and send it as a letter of guarantee. You can collect the same information for every covered retirement plan.

Step 2: Assess Your Situation

Try to answer the following questions:

  • Which superannuation plan will be affected when you reach the “vested” period?
  • From the time you reach the “vested” period until retirement, which pension plan will be affected?
  • When are pension plans terminated?
  • Has the company changed hands? when? Who is the former employer?

Step 3: Request in writing, then call your plan administrator

Ask your plan administrator in writing to resolve your superannuation issue and she will usually give you an answer within 30 days of receiving your written request. In your written request letter, please indicate that you are requesting Chapter 104 of the Employee Retirement Income Security Act (ERISA). In the letter, list your legal name, work card number, date of birth, years of employment, and your return address and telephone number. Remember to date the letter and send it as a letter of guarantee. If you do not receive a reply within 30 days, you will have to call the administrator to check.

Step 4: Submit an appeal (if necessary)

If the plan administrator cannot provide you with a satisfactory answer to your superannuation question, you can file a claim for a formal assessment of your question. There are 3 types of complaints you can file – an internal administrative claim, a Department of Labor claim, and a federal lawsuit.

Unpaid benefits: If your superannuation issue involves the calculation of your entitlement benefits, you should first file an internal administrative appeal. The Department of Labor can assist you with informal benefit appeals. Example: They can inform you of your rights and the actions you should take. They can also call your employer to conduct an initial and informal consultation on your grievance with the employer on your behalf.

Plan Issues: If your superannuation issue involves your plan administrator not doing her job well (for example, involving fraud), you can file a complaint about your superannuation issue directly in federal court or the Department of Labor. If you file a complaint with the Department of Labor, they may file a lawsuit on behalf of all retirement plan participants. They can also decide not to prosecute. You can file an individual lawsuit directly in federal court without going through the Department of Labor first.

What does the internal administrative grievance process usually look like?

Your Summary Plan Description should set out how to file an internal administrative grievance. Typically, you file a written grievance (including photocopies of relevant evidence) with the program administrator or a designee. The plan administrator should reply to you within 90 days. If you don’t get her reply within 90 days, your appeal may be denied. You should be given a written notice setting out why your appeal was denied. You have the right to appeal to the plan administrator within 60 days of receiving the denial notice. When you appeal, you should submit new information or evidence to supplement the deficiencies in the first appeal (indicate in the appeal why the first claim was denied.) The plan administrator usually has 60 days to review your appeal. If your appeal is denied, the plan administrator must explain in writing the reasons for denying your appeal. At this point, you can consider filing a lawsuit in federal court.

By aamritri

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