Employee Benefit Plans can be defined as an established plan offered by the employer, or Plan Sponsor, through a service provider that allows an employee to make contributions towards a 401(k) qualified retirement or similar employee-sponsored plan. There are several benefit plans but, in this article, we will cover the most common plans, which include Defined Benefit Plans and Defined Contribution Plans.
Defined Benefit Plans are a specific stated amount promised to the employee at retirement based on a percentage of their salary at retirement. This amount can also be based on the number of years employed with the employer. Defined Contribution Plans are set up for contribution into a participant’s qualifying account by either the employee, employer, or both. With Defined Contributions Plans, the employee determines the set dollar amount or percentage contributed based on wages earned. Withdrawals from this type of account cannot be accessed penalty free until after the participant reaches the age of 59 ½ years old, is permanently disabled, or otherwise unable to work.
As most are eying that moment when retirement comes, having a solid plan in place is important. Details about an Employee Benefit Plan that explain when eligibility may occur and/or the process of how benefits will be paid once eligible for benefit payments, are beneficial to workers when deciding on participating or not. This, along with an extensive summary plan description, grants worker’s access to important plan information like the operation of the plan, what will be provided, or how and when they may participant. In the two types of employee benefit plans I have mentioned above, participants are covered by The Employee Retirement Income Security Act (ERISA), a federal law which sets the standard for benefit plans. ERISA provides a blanket of protection for retirement plan assets of the participants. The Plan Sponsor is legally obligated to provide participants with a summary plan description so they may stay up to date with key features highlighted throughout the plan.
There are many moving parts with employee benefit plans which require distinct roles and responsibilities to administer and maintain. Delegations of roles and tasks are typically divided to allow for efficiency, but the ultimate responsibility lies with the Plan Sponsor and Administrator. When a benefit plan is offered to employees, there should be complete transparency on the management of these plans to provide protection to individuals participating in these plans. If you have an Employee Benefit Plan in place or are considering putting a plan in place and have questions or concerns, please reach out to us at ADKF. We are more than happy to provide answers or insight on the topic at hand.