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

ERISA Considerations
Qualified and nonqualified 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 and all plan management must follow strict fiduciary rules, and investments must be made and managed prudently and in a way that best represents the interests of all participants.
     
  • Eligibility: Qualified plans 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 complete 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 chooses an eligibility service of 1-year or less, then he can choose to have contributions vested overtime (within the statutory limits).
         
      • If the employer chooses an eligibility service of more than 1-year- then all contributions must be immediately 100% vested.
         
  • Vesting: All plan participants must be fully vested after three years of employment, or they must be 20% vested after three years and 100% vested after six 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 following tutorial: 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. Retirement

    Pension Vesting: Everything You Need to Know

    Understanding pension vesting is tricky, but it’s crucial to making wise decisions about changing jobs and collecting the most pension benefits you can.
  2. Small Business

    Plans The Small-Business Owner Can Establish

    Don't hesitate to adopt a smart plan for you and your employees.
  3. Financial Advisor

    Are You ERISA Compliant? Follow This Checklist

    Following a checklist can make achieving compliance with Employee Retirement Income Security Act of 1974 (ERISA) requirements much less burdensome.
  4. Retirement

    What Will Withdrawing Early from Your 401(k) Cost You?

    How to calculate the penalties on early withdrawals from your 401(k), including the 10% tax penalty, vesting and income tax.
  5. Retirement

    How We Can Help Close the Retirement Savings Gap

    The majority of Americans are not very confident about having enough for retirement.
  6. Retirement

    Comparing Qualified And Non-Qualified Plans

    Qualified and non-qualified retirement plans are created by employers to benefit their employees.
  7. Investing

    Your 401(k) Plan: Just How Outdated Is It?

    A recent GAO report indicates that many 401(k) plans are still clinging to archaic rules that hinder plan participants’ ability to save.
  8. Retirement

    Five Questions to Ask About Your Company's 401(k) Plan

    Having a comfortable retirement depends on taking maximum advantage of your company's 401(k), if it's offered.
  9. Retirement

    Florida's Surprisingly Flexible State Retirement System

    Retired Florida employees can choose a 401(k)-style investment plan or a traditional pension.
Frequently Asked Questions
  1. What's considered to be a good debt-to-income (DTI) ratio?

    Your debt-to-income ratio helps lenders determine your credit worthiness. Find out how to calculate your score and how to ...
  2. What is the difference between a loan and a line of credit?

    Learn to differentiate between lines of credit and standard loans, and determine when you are likely to use each method of ...
  3. What does a Chief Financial Officer (CFO) do?

    A CFO is responsible for accurate reporting of a company's financial information, investing the company's money and identifying ...
  4. How did George Soros break the Bank of England?

    George Soros pocketed $1 billion by betting against the British pound, cementing his reputation as the premier currency speculator ...
Trading Center