Retirement benefits are often paid out to retirees through a benefits plan managed by an employer or union. Retirement benefit plans may include a pension fund or disbursements from an IRA or 401K plan. Most pension plans administered through the private sector are covered under the Employee Retirement Income Security Act which is also known as ERISA. ERISA ensures all plan participants and beneficiaries are protected under the laws that govern retirement benefit-plan administration.
According to federal law, employers are permitted to exclude certain employees from participating in a retirement benefit plan. An employer may offer different levels of retirement plans to salaried workers versus those workers who are part of a union or who work as salaried employees. Retirement benefit plan eligibility may be restricted to those employees who work at least 40 hours per week, or employers may expand eligibility to part-time employees providing they work a minimum of at least 1,000 hours per year or 20 hours per week. In addition, employers are permitted to offer more attractive retirement benefit plans to senior members of management within an organization.
Federal laws require that every retirement plan should have formal documentation that provides complete details regarding the plan operations, investments and plan administrators. This information should be provided to all individuals who are newly enrolled in the plan, and all plan participants should be able to receive a copy of this documentation upon request. Administrators of retirement benefits are required to send participants written notification of any changes made to the plan as well as notification of any impending blackout periods lasting more than three consecutive business days. A blackout period may occur during a time when plan changes are scheduled to take place and can affect a participant’s ability to take loans or plan distributions.
Benefit Disbursement Age
Federal law also mandates when plan participants may begin to receive benefits from a retirement plan. Distribution of benefits must begin within 60 days of a participant reaching age 65 or the applicable retirement age according to the benefit-plan stipulations. Benefits may also begin 60 days following the completion of 10 years of service or termination of service with the employer. Some retirement plans such as a 401(k) plan allow provisions to delay the receipt of benefits or to take early retirement if necessary. The Department of Labor indicates federal law requires retirement benefits to begin on April 1 following the calendar year in which an individual turns 70½.