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As noted at the beginning of this
Retirement Savings
Article, employers are not required to offer a retirement plan and plans can
be modified and/or terminated.
What happens when a plan is terminated?
Federal law provides some measures to protect employees who participated in
plans that are terminated, both defined benefit and defined contribution.
When a plan is terminated, the current employees must become 100 percent
vested in their accrued benefits. This means you have a right to all the
benefits that you have earned at the time of the plan termination, even
benefits in which you were not vested and would have lost if you had left
the employer. If there is a partial termination of a plan, for example, if
your employer closes a particular plant or division that results in the end
of employment of a substantial percentage of plan participants, the affected
employees must be immediately 100 percent vested to the extent the plan is
funded.
What if your terminated defined benefit plan does not have enough money
to pay the benefits?
The Federal government, through the Pension Benefit Guaranty Corporation
(PBGC), insures most private defined benefit plans. For terminated defined
benefit plans with insufficient money to pay all of the benefits, the PBGC
will guarantee the payment of your vested pension benefits up to the limits
set by law. For further information on plan termination guarantees, contact
the Pension Benefit Guaranty Corporation toll free at 1.800.400.7242, or
visit the Web site.
What happens if a defined contribution plan is terminated?
The PBGC does not guarantee benefits for defined contribution plans. If you
are in a defined contribution plan that is in the process of terminating,
the plan fiduciaries and trustees should take actions to maintain the plan
until they terminate it and pay out the assets.
Is your accrued benefit protected if your plan merges with another plan?
Your plan rules and investment choices are likely to change if your company
merges with another. Your employer may choose to merge your plan with
another plan. If your plan is terminated as a result of the merger, the
benefits that you have accrued cannot be reduced. You must receive a benefit
that is at least equal to the benefit you were entitled to before the
merger. In a defined contribution plan, the value of your account may still
fluctuate after the merger based on the performance of the investments.
Special rules apply to mergers of multiemployer defined benefit plans, which
generally are under the jurisdiction of the PBGC. Contact the PBGC for
further information.
What if your employer goes bankrupt?
Generally, your retirement assets should not be at risk if your employer
declares bankruptcy . Federal law requires that retirement plans fund
promised benefits adequately and keep plan assets separate from the
employer’s business assets. The funds must be held in trust or invested in
an insurance contract. The employers’ creditors cannot make a claim on
retirement plan funds. However, it is a good idea to confirm that any
contributions your employer deducts from your paycheck are forwarded to the
plan’s trust or insurance contract in a timely manner.
Significant business events such as bankruptcies, mergers, and acquisitions
can result in employers abandoning their individual account plans (e.g.,
401k plans), leaving no plan fiduciary to manage it. In this situation,
participants often have great difficulty in accessing the benefits they have
earned and have no one to contact with questions. Custodians such as banks,
insurers, and mutual fund companies are left holding the assets of these
plans but do not have the authority to terminate the plans and distribute
the assets. In response, the Department of Labor issued rules to create a
voluntary process for the custodian to wind up the plan’s business so that
benefit distributions can be made and the plan terminated. Information about
this program can be found on the Department’s Web site at
www.dol.gov/ebsa.
Action Items
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If your former employer has gone out of business, arrangements should
have been made so a plan official remains responsible for the payment of
benefits and other plan business.
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Keep a file with information on your plan and company. If the company no
longer exists under its former name, you might find some information on
the Internet by entering the former name in a search engine. If your
plan is abandoned, use the search function on the EBSA Web site, at
www.dol.gov/ebsa, to find out if the plan’s custodian is terminating the
plan and the custodian’s contact information.
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If your plan merges, make sure you read the communications about changes
in your plan, including changes in benefits and investment choices.
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If your retirement benefit remains with a former employer, keep current
on any changes your former employer makes, including changes of address,
mergers, or employer name.
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If you move, give the plan your new contact information.
For more information or to have us answer any questions you may have,
please call 1-800-559-2900,
,
see our
contact Atlantic Financial
page,
or use this form to contact us:
Source
U.S. Department of Labor
(www.dol.gov)
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