Essentially, access to your retirement money depends on whether you have a defined contribution plan (where you have an individual account) or a defined benefit plan (where you receive a fixed benefit), according to the Department of Labor .
Typically, defined contribution plans can be taken as a lump sum, whereas defined benefit plans begin benefits at retirement age, usually 65, regardless of when your employment is terminated. Look closely at your summary plan description (you can get it from your employer or pension plan administrator) for distribution rules.
If you receive a distribution, you might want to consider rolling the amount over into an IRA, annuity, or your new employer's plan. Ask your New York Life agent for details.
What if your company files for bankruptcy? Is your money safe? It depends. Defined benefit plans are guaranteed by the Pension Benefit Guaranty Corporation (PBGC), a federal government entity. PBGC-insured means the government acts as a trustee for the fund, paying up to a certain amount in the company is unable to do so. Defined contribution plans are not PBGC-insured.
- Did You Know...?
The 1974 Employment Retirement Income Security Act, better known as ERISA, protects people's retirement funds in case of job change or loss.
ERISA does not require a company to create a pension fund, but if they do offer one, the federal law requires it to meet minimum standards. According to the Department of Labor, ERISA:
- Requires plans to disclose information about plan funding and features to participants;
- Sets minimum standards for participation, vesting, benefit accrual and funding;
- Requires accountability of plan fiduciaries;
- Gives participants the right to sue for benefits and breaches of fiduciary duty;
- Guarantees payment of benefits, though the Pension Benefit Guaranty Corporation, if a defined plan is terminated.
- Did You Know...?
Defined contribution plans include 401(k) plans, 403(b) plans, employee stock ownership (ESOPs), simplified employee pension plans (SEP), and profit-sharing plans.
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