Once you understand what type of plan you
have, how you earn benefits, and how much your benefits will be,
it is important to learn when and how you can receive them.
There are several points to keep in mind in determining
when you can receive benefits:
Federal law provides
guidelines, shown in Table 7 below, for when plans must
start paying retirement benefits.
Plans can choose to start
paying benefits sooner. The plan documents will state when
you may begin receiving payments from your plan.
You must file a claim for
benefits for your payments to begin. This takes some time
for administrative reasons. (See Chapter 6).
Under certain circumstances, your benefit
payments may be suspended if you continue to work beyond normal
retirement age. The plan must notify you of the suspension
during the first calendar month or payroll period in which
payments are withheld. This information should also be included
Summary Plan Description. A plan also must advise you of its
procedures for requesting an advance determination of whether a
particular type of reemployment would result in a suspension of
benefit payments. If you are a retiree and are considering
taking a job, you may wish to write to your plan administrator
and ask if your benefits would be suspended.
Table 7: Requirements under federal law for payment of
Under Federal law, your
plan must allow you to begin receiving benefits* the
later of -
Reaching age 65 or the
age your plan considers to be normal retirement age (if
10 years of service
Terminating your service with the employer
*For administrative reasons, benefits do not begin immediately
after meeting these conditions. At a minimum, your plan must
provide that you will start receiving benefits within 60 days
after the end of the plan year in which you satisfy the
conditions. Also, you need to file a claim under your plan’s
Table 7 shows the general requirements for
when payments begin. Listed below are some permitted variations:
defined benefit plans and
money purchase plans generally allow you to receive
benefits only when you reach the plan’s retirement age, some
have provisions for early retirement.
401(k) plans often allow you to receive your account
balance when you leave your job.
401(k) plans may allow for
distributions while still employed if you have reached age
59˝ or if you suffer a hardship.
Profit-sharing plans may permit you to receive your
vested benefit after a specific number of years or
whenever you leave your job.
A phased retirement option
allows employees at or near retirement age to reduce their
work hours to part time, receive benefits, and continue to
earn additional funds.
ESOPs do not have to pay out any benefits until one year
after the plan year in which you retire, or as many as six
years if you leave for reasons other than retirement, death,
You may owe current income
taxes – and possibly tax penalties -- on your distribution
if you take money out before age 59˝, unless you transfer it
IRA or another tax-qualified retirement plan.
Taking all or a portion of
your funds out of your account before retirement age will
mean you have less in retirement benefits.
Federal law sets a mandatory date by which you must start
receiving your retirement benefits, even if you would like to
wait longer. This mandatory start date generally is set to begin
on April 1 following the calendar year in which you turn 70˝ or,
if later, when you retire. However, your plan may require you to
begin receiving distributions even if you have not retired by
If you are in a defined benefit or money purchase plan,
the plan must offer you a benefit in the form of a life annuity,
which means that you will receive equal, periodic payments,
often as a monthly benefit, which will continue for the rest of
your life. Defined benefit and money purchase plans may also
offer other payment options, so check with the plan. If you are
defined contribution plan (other than a money purchase
plan), the plan may pay your benefits in a single lump-sum
payment as well as offer other options, including payments over
a set period of time (such as 5 or 10 years) or an annuity with
monthly lifetime payments.
If you are leaving your employer before
retirement age, see the next chapter.
In a defined benefit or money purchase plan, unless you
and your spouse choose otherwise, the form of payment will
include a survivor’s benefit. This survivor’s benefit, called a
qualified joint and survivor annuity (QJSA), will provide
payments over your lifetime and your spouse’s lifetime. The
benefit payment that your surviving spouse receives must be at
least half of the benefit payment you received during your joint
lives. If you choose not to receive the survivor’s benefit, both
you and your spouse must receive a written explanation of the
QJSA and, within certain time limits, you must make a written
waiver and your spouse must sign a written consent to the
alternative payment form without a survivor’s benefit. Your
spouse’s signature must be witnessed by a notary or plan
In most 401(k) plans and other defined
contribution plans the plan is written so different protections
apply for surviving spouses. In general, in most defined
contribution plans if you should die before you receive your
benefits, your surviving spouse will automatically receive them.
If you wish to select a different beneficiary, your spouse must
consent by signing a waiver, witnessed by a notary or plan
If you were single when you enrolled in the
plan and subsequently married, it is important that you notify
your employer and/or plan administrator and change your status
under the plan. If you do not have a spouse, it is important to
name a beneficiary.
If you or your spouse left employment prior
to January 1, 1985, different rules apply. For more information
on these rules, contact the Department of Labor toll free at
401(k) plans are permitted to – but not required to –
offer loans to participants. The loans must charge a reasonable
rate of interest and be adequately secured. The plan must
include a procedure for applying for the loans and the plan’s
policy for granting them. Loan amounts are limited to the lesser
of 50% of your account balance or $50,000 and must be repaid
within 5 years, or 15 years for residential loans.
Again, defined contribution plans are permitted to – but not
required to – provide distributions in case of hardship. Check
your plan booklet to see if it does permit them and what
circumstances are included as hardships.
Find out when and in what
form you can receive your benefits at retirement.
Fill out the necessary
forms to update information with your retirement plan.
Notify the retirement plan
of any change of address or marital status.
Keep all documents for
your records, including Summary Plan Descriptions, company
memos, and individual benefit statements.
For tax information, look
at Internal Revenue Service Publication 575 (Pension
and Annuity Income) by visiting
www.irs.gov and selecting
U.S. Department of Labor
Topical Articles of Interest:
Types Of Plans
Payment Of Benefits
Filing A Claim