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ROLLING OVER A PENSION PLAN

An employee, who leaves an employer, may move their pension plan to another company's plan or to another qualified account. This may be accomplished by a direct transfer or by rolling over the plan. With a direct transfer, the assets in the plan go directly to another plan administrator and the employee never has physical possession of the assets. When the employee rolls over their pension plan, they take physical possession of the assets. The plan administrator is required to withhold 20 percent of the total amount to be distributed and the employee has 60 calendar days to deposit 100 percent of the assets into another qualified plan. The employee must file with the federal government at tax time to receive a return of the 20 percent of the assets that were withheld by the plan administrator.

EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 (ERISA)

This establishes legal and operational guidelines for private pension and employee benefit plans. Not all decisions directly involving a plan, even when made by a fiduciary, are subject to ERISA's fiduciary rules. These decisions are business judgment type decisions and are commonly called "settlor" functions. This caveat is sometimes referred to as the "business decision" exception to ERISA's fiduciary rules. Under this concept, even though the employer is the plan sponsor and administrator, it will not be considered as acting in a fiduciary capacity when creating, amending or terminating a plan. Among the decisions which would be considered settlor functions are:

• Choosing the type of plan, or options in the plan;

• Amending a plan, including changing or eliminating plan options;

• Requiring employee contributions or changing the level of employee contributions;

• Terminating a plan, or part of a plan, including terminating or amending as part of a bankruptcy process.

ERISA also regulates all of the following:

• Pension plan participation

• Funding

• Vesting

• Communication

• Beneficiaries

PLAN PARTICIPATION

All plans governed by ERISA may not discriminate among who may participate in the plan. All employees must be allowed to participate if:

• They are at least 21 years old

• They have worked at least one year full time (1,000 hours)

INVESTMENT POLICY STATEMENT

The investment policy statement governs the way the assets of the plan are invested. It sets guidelines for diversification and acceptable levels of risk. The investment adviser to the plan must design a portfolio in line with the plan's investment policy statement. Advisers who do not adhere to the investment policy statement may be held liable to plan participants for any losses.

FUNDING

Plan funding requirements set forth guidelines on how the money is deposited into the plan and how the employer and employee may contribute to the plan.

VESTING

Vesting refers to the process of how the employer's contribution becomes the property of the employee. An employer may be as generous as they like, but may not be more restrictive than either one of the following vesting schedules:

• Three- to six-year gradual vesting schedule

• Three-year cliff: the employee is not vested at all until three years when they become 100 percent vested

COMMUNICATION

All corporate plans must be in writing at inception and the employee must be given annual updates.

BENEFICIARIES

All plan participants must be allowed to select a beneficiary who may claim the assets in case of the plan participant's death.

 
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