Is Changing Retirement Benefits Legal in a Company?

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Your retirement plan benefits can change.
Your retirement plan benefits can change. (Image: Kathy Quirk-Syvertsen/Photodisc/Getty Images)

For the most part, a company can change retirement benefits without employee input. The details of how this must be completed in order to meet legal guidelines are determined within the original plan documents and Internal Revenue Service regulations. Generally, the changing of retirement benefits can only occur with proper notification and within the guidelines of the original retirement contract.

Identification

To determine if your employer can change your benefits, start by checking your summary plan description. This document contains all of the information about a retirement account you previously signed up for with an employer. Here you will see exactly what benefits you were promised in exchange for participating, and you will also see the conditions which the employer must meet in order to change these benefits.

Notification

An employer must notify you whenever your retirement benefits or options change. This notification occurs when the employer sets up a new plan, offers new benefits or takes away benefits. Typically, the employer cannot take away any benefits retroactively. For example, if you deposited $300 to a retirement account on your last paycheck and your employer promised a 3 percent match at that time, you are owed that money even if the employer takes away the match in the future. Once you are notified of a change, it can be implemented moving forward. You will typically be granted a grace period to change your elections in response to the employer's changes as well.

Responsibility

It is the responsibility of an employer, not an employee, to meet all notification guidelines. An employer must also fully vest employee contributions into a retirement plan immediately; this protects you from experiencing a change in benefits after you have withheld income but before it is fully vested in your account. An employer can wait to fully vest its own contributions to an account, but it must do so within the confines of the retirement plan contract as it stood when the funds were promised.

Considerations

It is important to specifically look for modification language in any plan documentation an employer provides you. While it is the employer's responsibility to inform you of a change, you must read the information. An employer has met its end of the bargain by delivering the information to you. Your responsibility is to process the information and ask questions. Specifically, look for language saying "The company reserves the right to..." This language followed by words such as revoke, modify or terminate will indicate under what conditions your employer can change your plan benefits.

Solution

If your employer is modifying your benefits and you do not like the change, you can opt out of the plan. You have the option to roll your retirement plan into a separate, independent account. You may also have the option to attend informational meetings on the planned changes, give your input or vote on the change, depending on your company management's procedures for implementing changes.

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