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As noted at the beginning of this section,
employers are not required to offer a retirement plan and plans
can be modified and/or terminated.
Federal law provides some measures to protect employees
who participated in plans that are terminated, both
defined benefit and
defined contribution. When a plan is terminated, the current
employees must become 100 percent
vested in their accrued benefits. This means you have a
right to all the benefits that you have earned at the time of
the plan termination, even benefits in which you were not vested
and would have lost if you had left the employer. If there is a
partial termination of a plan, for example, if your employer
closes a particular plant or division that results in the end of
employment of a substantial percentage of plan participants, the
affected employees must be immediately 100 percent vested to the
extent the plan is funded.
The Federal government, through the Pension Benefit
Guaranty Corporation (PBGC), insures most private defined
benefit plans. For terminated defined benefit plans with
insufficient money to pay all of the benefits, the PBGC will
guarantee the payment of your vested pension benefits up to the
limits set by law. For further information on plan termination
guarantees, contact the Pension Benefit Guaranty Corporation
toll free at 1.800.400.7242, or visit the
Web site.
The PBGC does not guarantee benefits for defined
contribution plans. If you are in a defined contribution plan
that is in the process of terminating, the
plan fiduciaries and
trustees should take actions to maintain the plan until they
terminate it and pay out the assets.
Your plan rules and investment choices are likely to
change if your company merges with another. Your employer may
choose to merge your plan with another plan. If your plan is
terminated as a result of the merger, the benefits that you have
accrued cannot be reduced. You must receive a benefit that is at
least equal to the benefit you were entitled to before the
merger. In a defined contribution plan, the value of your
account may still fluctuate after the merger based on the
performance of the investments.
Special rules apply to mergers
of
multiemployer defined benefit plans, which generally are
under the jurisdiction of the PBGC. Contact the PBGC for further
information.
Generally, your retirement assets should not be at risk
if your employer declares bankruptcy . Federal law requires that
retirement plans fund promised benefits adequately and keep plan
assets separate from the employer’s business assets. The funds
must be held in trust or invested in an insurance contract. The
employers’ creditors cannot make a claim on retirement plan
funds. However, it is a good idea to confirm that any
contributions your employer deducts from your paycheck are
forwarded to the plan’s trust or insurance contract in a timely
manner.
Significant business events such as
bankruptcies, mergers, and acquisitions can result in employers
abandoning their individual account plans (e.g.,
401(k) plans), leaving no plan fiduciary to manage it. In
this situation, participants often have great difficulty in
accessing the benefits they have earned and have no one to
contact with questions. Custodians such as banks, insurers, and
mutual fund companies are left holding the assets of these plans
but do not have the authority to terminate the plans and
distribute the assets. In response, the Department of Labor
issued rules to create a voluntary process for the custodian to
wind up the plan’s business so that benefit distributions can be
made and the plan terminated. Information about this program can
be found on the Department’s Web site at
www.dol.gov/ebsa.
Action Items
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If your former employer
has gone out of business, arrangements should have been made
so a plan official remains responsible for the payment of
benefits and other plan business.
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If you are entitled to
benefits and are unable to contact the
plan administrator, contact EBSA by calling toll free at
1.866.444.EBSA (3272) or by visiting the Web site at
http://askebsa.dol.gov/.
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Keep a file with
information on your plan and company. If the company no
longer exists under its former name, you might find some
information on the Internet by entering the former name in a
search engine. If your plan is abandoned, use the search
function on the EBSA Web site, at
www.dol.gov/ebsa,
to find out if the plan’s custodian is terminating the plan
and the custodian’s contact information.
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If your plan merges, make
sure you read the communications about changes in your plan,
including changes in benefits and investment choices.
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If your retirement benefit
remains with a former employer, keep current on any changes
your former employer makes, including changes of address,
mergers, or employer name.
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If you move, give the plan
your new contact information.
Source:
U.S. Department of Labor
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