Company and union retirement plans are voluntary. This means that employers are not required to provide a plan. However, once they set up a pension plan or a 401(k), 403(b) or other retirement savings plan, they are required to follow certain rules required by the federal private pension law, the Employee Retirement Security Act, called ERISA. For instance, they have to allow you to earn the right to a retirement benefit after working a certain number of years, provide you with important information about your benefits, and offer a process for you to challenge the denial or miscalculation of your benefits, among other important rights. The rules for government and “church” plans are different and are not discussed here.
With some exceptions, the law generally prohibits retirement plan changes that affect the benefits you’ve already earned. However, changes in plans are permitted going forward. For example, employers and plan trustees may decide to change their retirement plans by reducing the level of benefits that you can earn in the future, or they may freeze the plan for new employees, not allowing them to earn benefits under the plan. Or they may stop a plan or merge two retirement plans. When employers go through a “restructuring” (for example, they buy or sell a division) it is possible that a totally new company could take over a retirement plan and a portion of the benefits you had counted on receiving will not be paid.
Click on the headings below to see more information.
Derisking or “risk transfer” is a strategy employers can use to remove pension liabilities from their corporate balance sheets, either by transferring the pensions to an insurance company or by offering lump sum buyouts to retirees.
In 2015, the Department of Treasury released a notice banning lump sum buyouts to retirees, but this position was reversed in 2019.
Employers and plan trustees are permitted to stop their plans at any time if they follow certain procedures.
If a pension plan stops when it doesn’t have enough money to pay all of the benefits it owes, a federal government agency called the “Pension Benefit Guaranty Corporation (PBGC)” may get involved.
If a pension plan stops when it has enough money to pay all promised benefits, it is generally required to buy annuities from an insurance company to pay those benefits. If this happens you will be notified which insurance company will be paying your benefits in the future.
If a retirement savings plan, such as a 401(k) plan, stops, the money in your account must be paid to you or, if the plan is unable to locate you, it must be rolled over into an Individual Retirement Account (IRA) in your name or sent to a state unclaimed property program. The plan administrator can also transfer the money to the Pension Benefit Guaranty Corporation’s Missing Participant Program.
If your employer goes out of business before paying you your 401(k) money and cannot be found, the U.S. Department of Labor will arrange to have your plan taken over by a trustee that will distribute the money in the plan. The Labor Department has a list of “orphaned” 401(k) plans.
If your pension or 401(k) plan stops when it has more money than is needed to pay all promised benefits, a special rule applies. People who have not worked long enough to earn a pension or to “vest” in their employer’s 401(k) matching contributions, may receive benefits. This is called a “partial termination.”
Employers are entitled to “freeze” their pension plans. What this means is that some or all of the employees covered by the plan stop earning benefits. However, they cannot lose any benefits they have earned up until the date of the freeze. There are different kinds of freezes.
A freeze can prevent all current and new employees from earning additional benefits under the plan. This is sometimes called a “hard freeze.”
A freeze can apply only to new employees. In this kind of “soft freeze” existing employees continue to earn benefits under the plan.
Many employers match the contributions that employees put into their 401(k) plans. Employers can stop making those matching contributions at any time as long as they follow certain rules.
Employers are generally free to change retirement plan rules for the future as long as most benefits earned up to the date the plan is changed are protected.
Retirement benefits that are protected up to the date the plan rules change include:
Retirement benefits that are not protected as of the date the plan rules change include:
A series of laws enacted in recent years require or allow pension plans that are significantly underfunded to reduce and, in some cases even eliminate, benefits promised by the plans.
Blogs & Newsletters
07/26/23
Should the U.S. Department of Labor’s (DOL) rules be strengthened to better protect workers and retirees when employers unload their pension responsibilities in so-called “de-risking” transactions? That was the question asked and addressed during an all-day hearing July 18 convened by DOL’s ERISA Advisory Council. Norman Stein, PRC’s Senior Policy and Legal Counsel who testified […]
Press Release
03/31/23
The Pension Rights Center (PRC) filed comments with the IRS/Treasury Department today urging the agency to strengthen – not weaken – critical legal protections for spouses’ retirement security. In its letter, PRC registered its strong disapproval of an IRS proposed rule that would eliminate the long-standing requirement that a spouse can only sign away their […]
Comments & Letters
03/31/23
The PRC filed comments with the IRS registering its strong disapproval of a proposed rule that would eliminate the long-standing requirement that a spouse can only sign away their right to a survivor’s benefit knowingly and voluntarily in the physical presence of a notary or plan official in order to safeguard against fraud and coercion […]
PRC In the News
07/26/22
‘I had to get this fight done no matter what’: It took retired trucker Mike Walden nine years, but reinstated benefits recently started flowing to multiemployer pension participants across America.
PRC In the News
11/10/20|Comstock's Magazine
In March, Truckee-based Mountain Hardware and Sports was up against the toughest test of its 43-year record of no layoffs. As the economy was going into a deep freeze, company president Doug Wright sent a letter to his staff on March 17.
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