Introduction

Few investments are more important than the one you have in your retirement plan. Because the average American will rely on savings for 18 years after retirement, it is essential that you understand your rights and responsibilities under your retirement plan.

Participants in retirement plans have certain rights that are governed by Federal law [29 USC Sec. 1001, et seq]. They also have responsibilities. Similarly, the people who sponsor your retirement plan also have rights and responsibilities. Most are spelled out by a law called the Employee Retirement Income Security Act of 1974 (ERISA). This article explains some of the important features of this law.

For example, the article outlines the role of different Federal agencies in regulating plans. It describes the obligations of your employer (or other appropriate plan official) to provide you with information about the plan, and tells you what information must be made available automatically, at regular intervals, and, in many cases, at no cost to you. It also points out the importance of keeping informed of any changes in your plan's rules of operation.

This article tells you what is generally required to become eligible for your plan, including how long you may have to be an employee before becoming a participant. Important concepts such as accruing benefits and becoming vested in your benefits are explained. The article also answers common questions about how changes in your employee status might affect your retirement benefits, such as termination or returning to your job after an interruption of employment. And it discusses the potential impact on your plan of mergers, acquisitions and plant shut downs.

Other important features include:

• A description of your plan fiduciary's duties to invest your money prudently and the sanctions against fiduciaries who misuse or mismanage your money.
• An explanation of the rules that require your employer to adequately fund your pension plan, as well as a description of the penalties for employers who fail to comply with minimum funding requirements.
• Instructions on how to file a claim for a retirement benefit and how to appeal for a review of any denial of your claim.

The information contained in the following pages answers the most common questions about retirement plans. Keep in mind, however, that this article is a simplified summary of participant rights and responsibilities, not a legal interpretation of ERISA.

ERISA and Your Retirement Plan

This section explains the purpose of the Employee Retirement Income Security Act, what it covers, and what is excluded from its coverage. It tells which plans are exempt from the law and who administers ERISA. The following questions are addressed:

• What is the Employee Retirement Income Security Act?
• What retirement plans are covered by ERISA?
• How does the law protect a plan's assets?
• What are SEPs, SIMPLEs, profit-sharing plans, and stock bonus plans?
• What are 401(k) and ESOPs plans?
• What is the role of Federal agencies?

What Is ERISA?

The Employee Retirement Income Security Act of 1974 (ERISA) is a Federal law that sets minimum standards for retirement plans in private industry. For example, if your employer maintains a plan, ERISA specifies when you must be allowed to become a participant, how long you have to work before you have a nonforfeitable interest in your benefit, how long you can be away from your job before it might affect your benefit, and whether your spouse has a right to part of your benefit in event of your death. Most of the provisions of ERISA are effective for plan years beginning on or after January 1, 1975.

ERISA does not require any employer to establish a retirement plan. It only requires that those who establish plans must meet certain minimum standards. The law generally does not specify how much money a participant must be paid as a benefit.

ERISA does the following:

• Requires plans to provide participants with information about the plan, including important information about plan features and funding. The plan must furnish some information regularly and automatically. Some is available free of charge, some is not.
• Sets minimum standards for participation, vesting, benefit accrual and funding. The law defines how long a person may be required to work before becoming eligible to participate in a plan, to accumulate benefits, and to have a nonforfeitable right to those benefits. The law also establishes detailed funding rules that require plan sponsors to provide adequate funding for your plan.
• Requires accountability of plan fiduciaries. ERISA generally defines a fiduciary as anyone who exercises discretionary authority or control over a plan's management of assets, including anyone who provides investment advice to the plan. Fiduciaries who do not follow the principles of conduct may be held responsible for restoring losses to the plan.
• Gives participants the right to sue for benefits and breaches of fiduciary duty.
• Guarantees payment of certain benefits if a defined benefit plan is terminated, through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation.