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The ERISA or Employee Retirement Income Security Act of 1974 makes sure that the assets of millions of Americans are protected until such time that they retire. In fact, the Act ensures that funds in the retirement plan during the working lives of the employees will be there when they retire. This federal law will set the minimum standards needed for retirement plans in the private sector. In case your employer wish to maintain a retirement plan, the ERISA act will specify:
. When the employee should be allowed to become a participant in the scheme.
. How long the employee can be away from work before it may start to affect his/her benefits.
. How long the employee has to work before he/she has a non-forfeitable interest in the retirement plan.
. Whether the spouse has a right to a part of the employee benefit in the event of the death of an employee.
In fact, ERISA doesn’t require any employer to establish a retirement plan. But it sets the minimum standards that should be followed by the employer if he/she chooses to establish a retirement plan. This article provides information on ERISA 401 k compliance.
What Is The ERISA 401 k Compliance?
The 401 k plan is a type of contribution plan where the employee is allowed to make contributions from his/her paycheck before the taxes are deducted. The contribution will go into a 401 k account. Most plans provide the opportunity for the employer to make contributions – matching the employee’s contributions up to a certain percentage. The ERISA act ensures the following:
- The employer should provide information to the participants about the plan – including its features and funding. The plan should furnish some information automatically and on a regular basis. In fact, some information may be available free of charge while some information is not.
- The act will set minimum standards for participating in such a plan such as the vesting, funding, and benefit accrual. The law will define how long an employee should work before he or she could participate in the plan. The act will also establish detailed funding rules that may require the sponsors to provide adequate funding for the plan.
- The act will ensure the accountability of plan fiduciaries. A fiduciary is defined in the act as an individual who exercises discretionary control over the plan’s management of assets. In fact, the fiduciaries who don’t follow the principles of conduct could be held responsible for restoring the losses to the plan.
- The act gives the participants the right to take legal action for breaches of fiduciary duty.
- The law will guarantee the payment of certain benefits in case the plan is terminated. This is performed through a federally chartered corporation – which is known as the Pension Benefit Guaranty Corporation.
A benefit plan is funded by your employer. In fact, such a plan promises the employee a specific monthly benefit at retirement. The benefit may be stated as a dollar amount or it may calculate your benefit by using a formula that includes important factors such as your salary, the number of years you have worked for the company, and your age.
On the other hand, a contribution plan doesn’t promise a specific dollar amount when you retire. In fact, you and your employer will contribute money to your individual account in the plan such as a 401 k plan. You are responsible for choosing how to invest the benefits you get once you retire. The ERISA act helps protect your interest in the long run. The aforementioned article provides information on the ERISA 401 k compliance.