Employee Right - Pension Plan

The major worry for an individual after he/she retires from work is about having a continued source of income. Employers are not required to offer pension benefits, and it depends on their discretion. However, upon retirement many workers receive a monetary benefit from their employers in the form of a pension. There are basically two types of pension plans. And no plan should discriminate against members of a protected class.

Defined benefit plan - In this plan, the amount received is normally based on the duration of the employment and the wages received. The employer commits to paying a certain benefit amount when the employee retires. Each employee does not have a separate account in these programs, as the money to support the pensions is generally administered through a trust established by the employer.

Defined contribution plan - The employer must contribute regular deposits into an account established for each employee. The amount should be same for both females and males. The employee is not guaranteed to receive a given amount during retirement, but only the amount in the account. It is tied to profit, and as profits rise or fall, the investment in the retirement fund will change.

The defined contribution plans include:

401 (K) Plans – This is an arrangement that permits an employee to elect to have the employer contribute part of the employee's wages into a retirement plan on a pre-tax basis. It gives employees the choice of deferring payment of part of their wages until retirement. The deferred amount, which some employers contribute at least in part, is then invested for retirement. The benefit due to the employee upon retirement dependson the amount of money in the account and the payout method selected.

Profit Sharing plans – In this plan, a designated percentage of the company profits are added to employee contributions; this amount goes into a trust fund. This will finance retirement benefits.

Stock-Option plans – It either gives employees stock options in the company or gives them an opportunity to buy shares. It depends upon the employees’ incomes as to how many shares they are allowed to purchase.

Individual Retirement Accounts (IRAs) - This lets the employee contribute a maximum amount to a tax deferred account: $2,000 for individuals, or $2,250 if the employee has a spouse who does not work. In some cases, it can also be sponsored by the employer.

However, employers are not required to provide a pension to all their workers. They can exclude 30% of the workforce, and they can exclude certain types of employees. But they cannot just cover higher-ups and discriminate against lower-paid workers. Generally, employees are required to reach a certain age, such as 62 or 65, before they can avail themselves of any pension plan in its totality. But many plans support early retirement, at the age of 55 or above, and the employee may receive pension benefits, but at a reduced monthly rate.

ERISA

ERISA is a federal law that sets minimum standards for pension plans in the private sector. It covers most pension plans operated by private sector employers. However, it does not cover government workers or the military. The law specifies when the employee must be allowed to become a participant, how long they have to work before they have a non-forfeitable interest in a pension, how long a participant can be away from the job before it might affect benefits, and whether the spouse has a right to be part of the pension in the event of the employee’s death.

ERISA requires that most employees be allowed to participate in an employer-sponsored pension plan, if they are at least 21 years of age and have completedone year of service with the company.