<< Page 1: Retirement and Pension
In theory, private pension plans seem like a good idea, however, in practice, most workers rarely stay at a given company long enough to accrue any real private pension benefits. Moreover, private pensions are constantly under threat of mismanagement, fraud, and the ebbs and flows of the economy, which is extremely unnerving to most employees. Decades ago, workers would dedicate decades of their life in service to one organization, and during this tenure, would receive and pay into a pension plan for their retirement. However, as time progressed, questionable and sometimes illegal actions stole pension rights away from workers, such as firing them right before retirement age and eliminating their right to benefits. In other cases, companies bankrupted or failed before a worker reached retirement age. In addition, the modern workers simply does not stay with company long enough to receive consistent benefits. The passage of the Employee Retirement Income Security Act (ERISA) somewhat protected workers from the most blatant abuse of pension plans, but even then, problems still exist.
Companies are not required to offer pension plans to all workers, but companies cannot discriminate in offering workers pensions, such as structuring their plan only to the benefit of executives. If your company does offer a pension plan and you are eligible, your company pension administrator will provide you with some important documents to help you understand your rights, including:
ERISA only mandates general procedures regarding filing pension plan claims within your company. There are some mandatory rules at a federal level, which all companies are forced to follow regarding their employees and pension plans. These rules include:
If all internal measures to resolve a pension plan claim disputes are exhausted, individuals must turn to federal laws, which will probably include filing a specific ERISA enforcement suit against your employer. The suit, which is heard in federal courts, may allow workers to recover pension benefits wrongly or illegally denied and force employers to provide required information about the pension plan per ERISA requirements.
Employers can terminate pension plans at any time; however, they must issue a warning to employees at least sixty days prior to doing so. In many cases each year, corporations will do this as cost cutting measures to keep a company solvent or appealing to shareholders. If the plan is covered by the Pension Benefit Guarantee Corporation, workers can retain their payments into the pension via PBGC insurance, but those without may simply be refused their pension benefits if their company does not possess the assets to cover existing pension obligations.
Additionally, pensions have been ruined due to mismanagement, illegal practices, or outright fraud in an increasing number of instances. ERISA created the PBGC as a non-profit entity to provide workers with some insurance against pension mismanagement. Additionally, a lawsuit in federal court may award a judgment in your favor and demand payment of pension benefits, but benefits may still not be paid out.
In short, 401 (k) plans offered tax favorable retirement savings accounts for an employee, which allows them to enjoy a tax-deferred status. Additionally, sometimes companies will match employee contributions put into 401 (k) plans. An employee takes payroll deductions that an employer structures into bank accounts with some financial institution. Employers enjoy a tax deduction from contributing to workers' plans. Limitations for employees are set by the IRS, which limits the amount one can place in a 401 (k) annually. Also, 401 (k) plans often allow early withdrawal from retirement accounts before some federal retirement benefits and other pensions will usually kick in, which is a benefit to some employees.