Are Employers Required to Establish Retirement Plans for Their Employees?

Many employers offer retirement plans for their employees as an additional incentive. However, according to the Internal Revenue Service (IRS), companies are not required by law to provide retirement plans for their employees.

Types

Employers can choose to establish a variety of tax-advantaged retirement plans for their employees. For-profit companies can offer 401(k) plans, Roth 401(k) plans, SEP IRAs and SIMPLE IRAs. Non-profit organizations can offer 403(b) plans and Roth 403(b) plans.

Effects

Employers can end their retirement plans at any time. However, if any employer elects to end the retirement plan, all employees become immediately vested in all employer contributions, regardless of their time of service.

Misconceptions

The federal Employee Retirement Income Security Act (ERISA) does not require employers to create pension plans. Instead, according to the Department of Labor, it only regulates plans that employers voluntarily create.

References

• IRS: Retirement Topics - Termination of Plan
• U.S. Department of Labor: Employee Retirement Income Security Act --- ERISA