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Employee Retirement Plans

All employees need a good retirement plan to fall back upon after retirement. A retirement plan, which may be initiated by employers, insurance companies, trade unions, the government, or other institutions, is a financial agreement where employees are entitled to a certain periodic or lump sum amount after retirement. Often not knowing how retirement plans work can cause questions that one would need fast answers to from someone that specializes in retirement related issues. Here are some of the frequently asked questions on retirement plans that have been answered by Experts.

Are federally qualified retirement plans protected from money damages in a civil litigation suit under Employees Retirement Income Security Act (ERISA) in Texas?

According to Texas laws, all retirement plans which are federally qualified are exempt from money damages. To read more about this and better understand laws governing exemptions, you may visit this link: http://www.statutes.legis.state.tx.us/Docs/PR/htm/PR.42.htm#42.0021

Can lump sum payments be discontinued in a retirement plan?

Retirement pension plans are governed by the Pension Protection Act which is a federal law. In the event of a plan’s funded status falling below 80%, lump sum benefits may or may not be payable, and if it falls further to below 60%, lump sum payments in most situations will not be made at all.

Does distribution in a 403(b) retirement plan require any consent or authorization from the employee? What are the laws governing distribution?

Retirement plans are a fringe benefit to employees and it becomes the employer’s prerogative to choose a plan and set its distribution accordingly. This information may be found in the Summary Plan Description (SPD). Therefore no consent or authorization from the employee required for their distribution. Retirement plans are governed by ERISA and the stipulations within the plan itself.

Can an employee dispute his or her retirement plan after retirement for reasons of poor fund value or seeming mismanagement of the fund?

There are several factors which govern how each plan functions. Under ERISA (Employees Retirement Income Security Act) the plan administrators are responsible for the decisions pertaining to investments and unless the employee can prove any gross negligence or malpractice, he or she will have to accept all investment decisions made on his or her behalf.

Can a retired employee who is a member of a union lose retirement plan benefits if he or she continues to work in a similar capacity elsewhere?

Unions have strict rules concerning retirement plans and retired employees resuming work in a similar capacity to which they were in prior to retirement. This is mainly to protect other union members. The employee may stand to lose retirement plan benefits if he or she continues to work elsewhere in a similar position.

Can a retired employee receiving monthly pension payments request for a lump sum payment?

Lump sum payments are mostly made out to those suffering from “financial hardship”. The basis for the request will be examined by the pension plan administrator and will be acceded to if it is due to financial hardship.

Can a severance agreement offered to an employee overrule a retirement plan?

Retirement plans cannot be affected or altered due to severance agreements and an employee will stand to gain all vested benefits accrued in the plan.

What is the difference between a 401k and a pension plan?

There are basically three differences. First, the contributions towards a 401k are largely by the employee, whereas contributions towards a pension plan are made 100% by the employer. Secondly, in a 401k, investments are controlled by the employee whereas in a pension plan, investments are controlled by an investment manager and thirdly, there is a difference in “guarantee”. In a 401k, the employee accumulates his or her funds according to the periodic deposits made and on the rate of return received for the investment. However, a pensioner is guaranteed to receive monies at regular intervals after retirement for the remainder of his or her life. This will however cease following the demise of the retired employee and cannot be claimed by his or her legal heirs thereafter.

One of the basic concerns of an employee is his or her source and level of income following retirement. Contributing to or being part of a good retirement plan during the employment years will help the employee to a large extent after retirement. Since retirement plans are mostly chosen by the employer, employees may have doubts and questions which may be best clarified and answered by legal experts on the subject.
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