​This publication is about how some pension plans and retirement plans work. It also covers your basic rights under most plans. The information here should only be used as a starting point. Be aware that laws can change. You should always talk to a financial advisor before making any financial decisions.

Planning for Retirement

Generally, if you want to keep the same standard of living after you retire, you will need almost the same amount of money each month as you did when you were working (estimate 70-90%). Social Security pays about 40% of what you earned before retirement. The rest of your retirement income should come from pension or retirement plans (both called “retirement plans”), personal savings, and/or other investments. Considering that the average American spends 20 years in retirement, it is important to think about what your retirement expenses will likely be and to make a financial plan. 

​For information on planning for retirement or the amount social security will pay you, see Resources at the end of this publication.

Employee Sponsored Plans

Many employers offer retirement plans to their employees. These plans must follow a federal law called the Employee Retirement Income Security Act (ERISA), which sets minimum standards for employee health and retirement benefit plans. 

​A few retirement plans do not have to follow ERISA. Those plans are special insurance-deferred compensation plans (like life insurance), government plans, and most tax-exempt organization (non-profits, co-ops, religious associations, etc.) plans. 

What Kinds of Plans Might an Employer Have?

Generally, a private company will have either a defined benefit plan or a defined contribution plan. 

​With a defined benefit plan, you will know exactly how much you will be paid when you retire; it is based on your salary, age, and the number of years you worked. For example, pensions and annuities are defined benefit plans. 

With a defined contribution plan, you choose how much money to contribute, and often your employer will contribute as well. That money is then invested in stocks, mutual funds, etc. For example, 401(k)s and profit-sharing plans are defined contribution plans. The money you get from it depends on how much money was put in and the gains or losses of the investments.

​If you work for the government or a non-profit, other plans may be available. See the listings under Other Retirement Plans in Resources.

Can I Participate in My Employer’s Plan and, If So, When?

If your employer has a plan, you may be able to participate in it depending on several factors, like how long you have worked for the employer. Different workers sometimes have different plans. You can check with the plan administrator for details about your employer’s plans.

When Do I Get the Money from My Plan?

If you contribute money to your plan, you can take out all the money currently in the plan at any time. However, if your employer makes contributions as well, you usually have to work for that employer for a certain amount of time before that money is considered yours. This is known as “vesting.” Once you work for your employer for the required time, your benefits vest and become yours. 

​Usually, you must also be a certain age before you can take money from the plan. Sometimes you can take out money early, but you will pay a tax penalty. Review your employer’s plan documents for more details.

Is My Retirement Plan from My Employer Protected?

Yes, your retirement plan is protected by your employment contract and state and federal law. You also have some legal protection if something bad happens to your employer-sponsored retirement plan. For example, if your employer terminates your plan while you are still working, your benefits could become fully vested automatically. Your employer cannot take vested benefits away from you. 

​For defined benefit plans, the Pension Benefit Guaranty Corporation (PBGC) guarantees payment of your vested benefits up to a certain amount. PBGC does not cover defined contribution plans, but you may have the right to sue if you think the company managing the plan did not act in your best interest. 

​Your employer cannot fire or punish you to avoid paying a plan benefit. Your employer cannot punish you for exercising your ERISA rights or for giving information or testimony in an investigation or legal proceeding related to ERISA. If your employer breaks these rules, talk to a lawyer. See the listings under Legal Help in Resources at the end of this publication, and the “Legal Help” chapter of the Handbook for Washington Seniors for information about finding a lawyer. 

What If I Take a Break from Working?  

Vested benefits are never lost by taking a break from your job. For non-vested benefits, if your break is longer than 5 years or longer than the time you worked for your employer before the break (whichever is greater), then you will not be able to count the time before the break for purposes of vesting. 

That means you will have to start over on counting work years before your benefits vest again. If your break is shorter, you can count the time before your break toward your unvested benefits, which means faster vesting on your return to work. 

Can I Appeal My Employer’s Denial of Pension Benefits?

Your plan must have a written procedure for making a claim for benefits and for appealing any denial. The summary should have a description of these procedures. By law you must have a certain amount of time to appeal and be given a decision about a denial in writing. If you disagree with a final decision denying you benefits, talk to a lawyer. See the listings under Legal Help in Resources at the end of this publication, and the “Legal Help” chapter of the Handbook for Washington Seniors for information about finding a lawyer.