| The Employee Retirement Income Security Act (ERISA) establishes certain responsibilities for employers who offer pension plans to their employees as well as rules for how the plans must be administered. In addition to defining who may be eligible for benefits, how such benefits accrue, and how employees become vested in certain benefits, ERISA also sets certain rules for payment of benefits upon retirement.
ERISA requires that payment of pension benefits to a participant begin 60 days after the end of the plan year in which the participant reaches the normal retirement date for the plan, which under ERISA can be no more than a participant's 65th birthday; after the end of the 10th year after the participant began participation in the plan; or after the participant terminates his or service with the employer, whichever event comes latest. ERISA-governed plans may allow the beginning of benefit payments before these times but cannot force a participant to begin receiving payments before normal retirement age as long as the participant has at least $3,500 in the plan.
ERISA provides for certain times and circumstances under which a pension plan may allow a participant to receive benefits, whether retirement age has been reached or not. The times and circumstances that allow benefit payments to be paid vary depending upon the type of plan and will be specified by the plan. For example, a 401(k) plan may allow a participant to receive benefits upon termination of employment, retirement, death, disability, reaching the age of 59 and one-half, or if the participant suffers a hardship.
ERISA also provides that a tax-qualified plan participant must begin to receive payments beginning April 1 of the year in which the participant reaches age 70 and one-half, regardless of the plan's rules. Thus, for such a plan, payment benefits would begin on that date even if none of the other events that required a plan to begin payment had occurred.
Although there are some restrictions, ERISA pension plans have considerable leeway in the form in which they make benefit payments. The nature of ERISA restrictions will depend on the particular type of pension benefit plan at issue. A defined benefit plan or money purchase plan must provide a life annuity, which is paid in the form of equal periodic payments for life. A married participant is entitled to a qualified joint and survivor annuity, which grants certain rights to a participant's spouse. Other defined contribution plans other than money purchase plans may make payments in virtually any form, including a one-time lump sum payment. If such a plan does offer a life annuity, the spouse of a married participant will also be entitled to a life annuity or joint and survivor annuity. Copyright 2010 LexisNexis, a division of Reed Elsevier Inc. |