Retirement and College Savings Plans - Employer-Sponsored Retirement Plans


There are two broad categories of employer-sponsored retirement plans: qualified and non-qualified. Most of the plans with which you must be familiar fall into the qualified category.

Employee Retirement Income Security Act (ERISA) Requirements
Qualified and non-qualified employer-sponsored retirement plans follow the guidelines of the Employee Retirement Income Security Act of 1974, better known as ERISA, which outlines a number of basic tenets:

  • Fiduciary Responsibility: Any investment of contributions and plan assets, as well as all plan management, must follow strict fiduciary rules. Furthermore, investments must be made and managed prudently and in a way that best represents the interests of all participants.

  • Eligibility: The plan must cover all employees 21 and older who have worked for the employer for at least two years (one year for 401(k) plans). However, if the plan requires employees to work more than one year to be eligible to participate in the plan, then the plan cannot require than an employee complete more than two years of service before he or she is 100% vested.

    • Generally, employees who are under age 21 and/or who have not completed the required number of years of service can be excluded from participating in the plan (or employees who are at least age 21 and who have performed the required years of service must be allowed to participate in the plan).

    • The years-of-service requirement is established by the plan, but cannot exceed two years - i.e. the employer can choose whether he wants employees to work from zero to two years before becoming eligible to participate.

      • If an employer chose an eligibility service of one year or less, he can choose to have contributionsvested over time (within the statutory limits).

      • If the employer chooses an eligibility service of more than one year, all contributions must be immediately 100% vested.

  • Vesting: All plan participants must be fully vested after five years of employment, or they must be 20% vested after three years and 100% vested after seven years.

  • Communication: The retirement plan must be available for review in writing, and employees must receive regular information on plan benefits, vesting procedures, account status and availability.

Most companies adopt a template plan that has been designed by a financial institution or investment company and already meets the ERISA and IRS standards for design and operation.

ERISA is also known as the Pension Reform Act, although it regulates most employee benefit plans and non-pension based personal retirement plans. Its main function is to protect participants in retirement plans against the abuse and misuse of funds within a retirement account.

The Introductory Tour Through Retirement Plans will direct you to a multitude of tutorials that are each devoted to one of the most common retirement plans. Each will explain how to establish an account, make contributions and withdraw funds.

Qualified Employer-Sponsored Retirement Plans
Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Short S&P500

    Find out information about the ProShares UltraPro Short S&P 500 exchange-traded fund, and learn detailed analysis of its characteristics and suitability.
  2. Active Trading

    The 5 Biggest Canadian Law Firms

    Obtain company information about some of the largest major legal firms that are headquartered and have principal operations in Canada.
  3. Mutual Funds & ETFs

    ETF Analysis: SPDR Barclays Investment Grd Fl Rt

    Learn more about the SPDR Barclays Investment Grade Floating Rate Fund, which tracks an index of highly rated floating debt securities.
  4. Mutual Funds & ETFs

    ETF Analysis: ALPS Medical Breakthroughs

    Learn more about a unique and innovative exchange-traded fund (ETF) in the biotechnology industry: the ALPS Medical Breakthroughs Fund.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares US Healthcare

    Learn about the iShares U.S. Healthcare exchange-traded fund, which invests in a wide range of health care providers, hospitals and home care facilities.
  6. Markets

    The 5 Biggest Chinese Natural Gas Companies

    Read about the top five Chinese natural gas companies as measured by gas production volume and learn a little more about their business operations.
  7. Entrepreneurship

    Top 5 Startups that Emerged in Toronto

    Learn how Toronto has built a fertile climate for startups, and identify some of the top companies to emerge from the city's hot startup market.
  8. Mutual Funds & ETFs

    Top 5 Japan Mutual Funds

    Discover five of the most popular and best-performing mutual funds offering investors direct exposure to equities of Japanese companies.
  9. Markets

    The 5 Biggest Chinese Insurance Companies

    Read about the top Chinese insurance companies by market capitalization, and learn a little about their positions in the marketplace.
  10. Insurance

    Top 5 Car Insurance Companies in Texas

    Examine the five biggest automobile insurance companies operating in the state of Texas, ranked based on market share in the state.
RELATED TERMS
  1. Earnings Before Interest & Tax ...

    An indicator of a company's profitability, calculated as revenue ...
  2. Implied Volatility - IV

    The estimated volatility of a security's price.
  3. Plain Vanilla

    The most basic or standard version of a financial instrument, ...
  4. Operating Cost

    Expenses associated with the maintenance and administration of ...
  5. Equity Market

    The market in which shares are issued and traded, either through ...
  6. Trade Credit

    An agreement where a customer can purchase goods on account (without ...
RELATED FAQS
  1. Can mutual funds outperform savings accounts?

    A mutual fund can – and should – outperform a savings account. In most cases, it should not even be a close race. Savings ... Read Full Answer >>
  2. Can mutual funds invest in private companies?

    Mutual funds can invest in private companies, which may come as a surprise to many investors. It is rare for a fund to have ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. Can my IRA be garnished for child support?

    Though some states protect IRA savings from garnishment of any kind, most states lift this exemption in cases where the account ... Read Full Answer >>
  5. Why is my 401(k) not FDIC-Insured?

    401(k) plans are not FDIC-insured because they are typically composed of investments rather than deposits. The Federal Deposit ... Read Full Answer >>
  6. Can I use my IRA savings to start my own savings?

    While there is no legal reason why you cannot withdraw funds from your IRA to start a traditional savings account, it is ... Read Full Answer >>
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!