As described in the previous chapter, ERISA sets rules protecting your
eligibility to participate, your accrual of benefits, and your becoming vested
under your retirement plan. ERISA also provides a variety of rules concerning
when, as a plan participant, you may or must be permitted to receive your
benefits. This chapter describes the payment of your benefits.
These questions are addressed:
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?
ERISA provides specific rules governing when you may, or must, begin
receiving your retirement benefits. First, ERISA sets the latest date by which
the plan must permit you to begin receiving your benefit. Under this rule,
payment must begin by the 60th day after the end of the plan year in which the
latest of the following events occur:
you reach age 65 or, if earlier, the normal retirement age specified
by your plan;
the end of the 10th year after you began participation in the plan
ends; or
you terminate your service with the employer.
Thus, for example, your plan must provide at a minimum that you will be
entitled to begin to receive your benefit 60 days after the end of the year in
which you reach age 65, if you began participation in the plan at least 10 years
before that year.
Your plan may allow you to receive payment of your benefit earlier than
required by the above rule (and many plans do, subject to rules described
below). However, as long as the present value of your vested accrued benefit is
greater than $5,000, the plan cannot force you to begin receiving your benefit
before you reach the age that is generally considered normal retirement age (or
age 62 if later).
If the present value of your vested accrued benefit under the plan is $5,000
or less, the plan may require you to receive your benefit when it first becomes
distributable, such as when you terminate employment. In determining whether
your vested accrued benefit is $5,000 or less, the portion of your benefit that
comes from amounts rolled over from another plan is not counted.
ERISA provides rules governing the times at which a retirement plan may
permit you to receive benefits. As these limitations on distribution events for
payment vary depending on the type of plan, consult your summary plan
description or
plan document
for the specific events or times that are the conditions under which you will be
entitled to receive your benefits. After the event occurs that permits payment
of your benefit, your plan may require some reasonable period of time during
which to calculate your benefit and determine your payment schedule, or to value
your account balance and to liquidate any investments in which your account is
invested. The following are a few general rules about possible distribution
events for which your plan may provide:
If your plan is a
defined benefit plan or a money purchase plan, it will set a normal
retirement age, which is generally the time at which you will be eligible to
begin receiving your vested accrued benefit. These types of plans may permit
earlier payments, however, either by providing for early retirement benefits,
for which the plan may set additional eligibility requirements, or by permitting
benefits to be paid when you terminate employment, suffer a disability,
or die.
If your plan is a 401k plan, it may permit you to take some or all of your
vested accrued benefit when you terminate employment, retire, die, become
disabled, reach age 59, or if you suffer a hardship. If your plan is
profit-sharing plan or a stock bonus plan, your plan may permit you to receive
your vested accrued benefit after you terminate employment, become disabled,
die, reach a specific age, or after a specific number of years have elapsed.
Your plan's summary plan description should describe all of the rules
applicable to any of the events that permit distributions.
ERISA also sets a date by which you must begin to receive your benefits,
regardless of your wishes or the plan's rules, if your plan is tax-qualified.
This mandatory beginning date is generally April 1 of the calendar year
following the calendar year in which you reach age 70 or retire*. ERISA provides
rules for determining how much of your accrued benefit you must then receive
each year.
With some very important limits, your plan can dictate the forms in which you
may receive your accrued benefit. The protections that ERISA provides about form
of benefit payments vary (again) depending on whether you have a defined benefit
plan, money purchase plan, or other kind of defined contribution plan. If you
are covered under a defined benefit plan or a money purchase plan, your benefit
must be available in the form of a life annuity, which means you will receive
equal periodic payments (e.g., monthly, quarterly, etc.) for the rest of your
life. If you are married, your benefit must be available in the form of a
qualified joint and survivor annuity. (That form of benefit payment is described
in the next chapter, concerning spousal rights to benefit payments).
If you are covered under a defined contribution plan that is not a money
purchase plan, the plan may choose to pay your benefits in a single lump sum
payment, or in any other form it chooses. If it offers a life annuity option,
however, and you choose that option, you and your spouse (if any) will be
protected by being offered a life annuity or a joint and survivor annuity that
satisfies the requirements of ERISA.Source: Department of Labor
Financial Planning and Investment Services
Atlantic Financial has been serving clients on the Internet since 1994
and enjoys a solid reputation for service, selection and value. We can
review your
financial plan, assist with your
401k Rollover
or
IRA Rollover
and answer your
retirement questions.
Call 1-800-559-2900 and ask to speak with an Investment Advisor.
Please remember that education is the first step you can take to meet
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