What Is Required by Law for Company Retirement Plans?

Hi ATS,

I am reaching out because I have been researching ERISA (Employee Retirement Income Security Act of 1974), and trying to find information about what the law requires for employers and retirement accounts, but have not found the answers I am looking for. Perhaps a fellow member may be able to point me in the right direction. If not, at least I tried.

To cut to the chase, if I were hypothetically leaving a current employer after over 7 years of full-time work, what would happen to my retirement matching under the following circumstance? (I understand that companies are not required to offer retirement plans and that it is completely voluntary)

PS, there is no "vesting period" with this employer either.

The current employer does offer a 401K plan, and matching contributions up to 3% of the employee's annual salary.

Every year, the employer matches the 3%the employee contributed to their 401K plan, but not until January of the next year (all at once). Again, hypothetically, if they were to leave their current job in October, under this system the employee would not be receiving the matching contribution this year, even though 3% of their salary had gone towards their 401K.

So I have a sibling who is a Financial Advisor, and one of my best friends who is a CPA for a college, and he does audits of companies for their 401K plans. I have discussed this hypothetical situation with both of them (among other people I am friends with), and the general consensus is that it doesn't sound like the retirement plans are being managed "by the book".

I've read that some companies have a "year-end" rule, but if the employee has worked for 1,000 hours, they may still be able to collect the matching contribution. In this situation, let's assume the employee worked 1,560 hours and has surpassed that 1,000-hour requirement.

Does anyone have any idea about what is and is not kosher when it comes to retirement matching, waiting periods, etc.?

Thanks in advance for your thoughts.

FamCore

a reply to: FamCore

I've never seen a 401k that was ran by an employer.
It's like insurance, an outside plan is used.

You would get your best answers from the 401k firm.

But it sounds like the employers match for the year would not be paid.

a reply to: FamCore

It all depends. Is it a match or is it a voluntary contribution.

1) If employees had to contribute money in order to get this years payment then they will owe you the match to you based on what you contributed.

2) If they made this contribution to all employees, regardless if they put away their own money or not, then they would not owe the match to you.

With a year end contribution I would assume case 2.

a reply to: sligtlyskeptical

the employee handbook states the following:

Employees are also eligible to participate in [company name]'s Simple IRA plan, including [company name] matching, offered to all employees.

I recommend requesting a copy of the retirement plan documentation. This should outline the rules for the employer matching portion of the retirement contribution.

originally posted by: FamCore
So I have a sibling who is a Financial Advisor, and one of my best friends who is a CPA for a college, and he does audits of companies for their 401K plans. I have discussed this hypothetical situation with both of them (among other people I am friends with), and the general consensus is that it doesn't sound like the retirement plans are being managed "by the book".

You have a sibling who is a financial advisor and a best friend is a CPA who does audits of 401k plans and you are asking random people of questionable expertise on ATS???????

a reply to: schuyler

Yes, because after looking at ERISA requirements i didn't find my answer and both my sibling and my friend told me the same thing, that it was "fishy", and that's about it. I appreciate getting perspectives of people here on ATS because of the diversity and hidden gems of wisdom I wouldn't find in my circle

Every year, the employer matches the 3% the employee contributed to their 401K plan, but not until January of the next year (all at once). Again, hypothetically, if they were to leave their current job in October, under this system the employee would not be receiving the matching contribution this year, even though 3% of their salary had gone towards their 401K.

It is most likely that the amount of the match for a partial year would be prorated. Just like if you started work in the mid year.

I would ask your company's HR department.

You stated that your companies a Simple IRA plan, a Simple 401k only requires the matching contribution to be deposited once a year.

Rules for Simple 401k

SIMPLE 401(k) SIMPLE is an acronym for Savings Incentive Match Plan for Employees of Small Employers. These types of 401(k)s suit firms with a maximum of 100 employees who earn at least $5,000 a year. SIMPLE 401(k)s also require immediate, full vesting of company contributions, but companies with SIMPLE 401(k)s cannot offer other retirement programs. The rule requires the company to make either a matching or a non-elective contribution each year, and limits how much it can contribute. Matching contributions cannot exceed 3 percent of an employee's salary, while non-elective contributions have a 2-percent ceiling. Should a company's headcount grow beyond 100 employees after it has maintained a SIMPLE 401(k) plan for at least a year, it qualifies for a grace period during which the IRS views its employment level as meeting the 100-count requirement.