Dear Dr. Don,
My company recently announced it will be discontinuing our pension plan. I’m not sure what my best financial option is as to where I should roll over the money I’ve contributed. I have not been with the company long enough to become vested. Do you have any suggestions?
— Confused Co-worker
You’re going to need more help than I can give you in this column. For example, there’s a difference between an employer terminating a pension plan and an employer freezing a pension plan. It’s also a little unusual for employees to contribute to a pension plan, also known as a defined benefit plan. So you may actually be in a defined contribution plan.
I contacted the Department of Labor about your question and was told your ability to roll over your contributions to a pension plan into another retirement account, such as a traditional IRA, would depend on the language in the plan document.
You have the right to receive a copy of your plan document and the “CliffsNotes” version of the plan document, called the summary plan description, from your plan administrator.
The advice from the Department of Labor was to get a copy of your plan documents and give the Employee Benefits Security Administration a call at (866) 444-EBSA, or (866) 444-3272. There, you can discuss your ability to roll over employee contributions into a traditional or Roth IRA account.
If you were making contributions to the pension plan, those contributions are, of course, immediately vested. However, it may not be in your best interest to withdraw your contributions from the plan, partially because when a company terminates a pension plan, your accrued benefit is 100 percent vested immediately upon plan termination. So your company contributions vest even though you haven’t met the vesting requirements of an active plan.
Here’s more info from the Department of Labor’s “Frequently Asked Questions About Pension Plans and ERISA” Web page:
Although pension plans must be established with the intention of being continued indefinitely, employers may terminate plans. If your plan terminates or becomes insolvent, ERISA provides you some protection. In a tax-qualified plan, your accrued benefit must become 100 percent vested immediately upon plan termination, to the extent then funded. If a partial termination occurs in such a plan, for example, if your employer closes a particular plant or division that results in the termination of employment of a substantial portion of plan participants, immediate 100 percent vesting, to the extent funded, also is required for affected employees.
A terminated qualified defined benefit plan typically is insured by the Pension Benefit Guarantee Corp.
Ask the plan administrator for a copy of the summary plan description, defined in the Department of Labor publication What You Should Know About Your Retirement Plan” as the following:
A document provided by the plan administrator that includes a plain language description of important features of the plan, e.g., when employees begin to participate in the plan, how service and benefits are calculated, when benefits become vested, when payment is received and in what form, and how to file a claim for benefits. Participants must be informed of material changes either through a revised Summary Plan Description or in a separate document called a Summary of Material Modifications.
Talk to the Employee Benefits Security Administration and your plan administrator about your options. If you can’t get comfortable with what they’re telling you, meet with a tax professional, too.
Read more Dr. Don columns for additional personal finance advice.