401k Plan
401k Rules
Chapter 9: Protecting Your Benefits In The Event Of Plan Termination or
Merger
These questions are addressed:
What happens with plan
termination?
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?
Although retirement plans must be established with the intention of
being continued indefinitely, employers may terminate plans. If your
plan terminates or becomes insolvent, ERISA provides some
protection. In a tax-qualified plan, your accrued benefit must
become 100 percent vested immediately upon plan termination, to the
extent then funded. If a partial termination occurs in such a plan,
for example, if your employer closes a particular plant or division
that results in the termination of a substantial portion of plan
participants, immediate 100 percent vesting, to the extent funded,
also is required for affected employees.
What happens if your
plan terminates without enough money to pay the benefits?
Which benefits are guaranteed?
If your terminated plan is a
defined benefit plan
insured by the Pension Benefit Guaranty Corporation, the PBGC will
guarantee the payment of your vested pension benefits up to the
limits set by law. Benefits that are guaranteed or that exceed
PBGC's limits may be paid depending on the plan's funding and on
whether PBGC is able to recover additional amounts from the
employer. For further information on plan termination guarantees,
write to the Pension Benefit Guaranty Corporation, Administrative
Review and Technical Assistance Department, 1200 K Street, N.W.,
Washington, D.C. 20005, telephone 202.326.4000. If a plan terminates
and the plan purchases annuity contracts from an insurance company
to pay benefits in the future, plan fiduciaries must take certain
steps to select the safest available annuity. Thus, in accordance
with Department of Labor guidance, the plan must conduct a thorough
search with respect to the financial soundness of insurance
companies that provide annuities, to better assure the future
payment of benefits to participants and beneficiaries.
Is your accrued benefit protected if your plan merges with another plan?
Your employer may choose to merge your plan with another plan. If your plan
is terminated as a result of the merger, the benefit you would be entitled to
receive after the merger must be at least equal to the benefit you were entitled
to receive before the merger. Special rules apply to mergers of multiemployer
plans, which are generally under the jurisdiction of the PBGC.
Source: Department of Labor
Be sure your 401k management team is up to date about
New 401k Laws
