Employer Pension Plans

An employer's pension plan may be a qualified or non-qualified plan. A qualified plan is one that meets the requirements of the Internal Revenue Service code. A non-qualified plan does not meet the IRS code.

Employer pension plans are maintained to provide retirement funds for employees or their beneficiaries. A plan may provide fixed benefits (set by the employer)or have fixed employer contributions that are a percentage of the employee's wages. In this type of plan employee contributions may be matched by the employer.

Participation in an employer pension plan means the employee can not withdraw their contributions or the investment earnings on those contributions before retirement, death, or disability. The employee may be able to withdraw funds if they are fired or laid off or if the employer terminates the plan. The employer must fund the plan.

Another type of pension plan is the profit-sharing plan. Contributions for employees are based on the profits of the employer. An employee can contribute to this type of plan. Usually, the contributions in the plan are allocated to individual accounts for those participating in the plan. Contributions are allocated to the employee based on a formula.

Distributions can be made to an employee after they are vested (have participated in the plan for a number of years, usually five to ten). The distribution can be made after a certain age or at retirement. The employee can also receive the money if they terminate their employment or some other event occurs such as death, illness, or disability. Each plan will have its own terms for the distribution of funds.

Some profit-sharing plans base their allocation formulas on the amount the participant pays into the fund.

There are a number of other ways that a company can set up a retirement plan. You should check with your employer and ask questions about the plan. If you know your benefits with your company, you can determine what additional plans you have to make to reach your financial goals for retirement.