Most mid-size and large companies provide their employees with specific benefits, such as life insurance, disability insurance, health insurance and pension benefits. Such benefits can include a defined-benefit pension plan. A defined-benefit plan is a type of retirement plan sponsored by employers. It involves a promised specific benefit that cannot be reduced once it is earned or “vested.” These plans are employer-sponsored, employer-funded benefits, and the amount you are promised as a benefit depends on the specifics of your plan. They are governed by a federal law called the Employee Retirement Income Security Act of 1974 (“ERISA”).
Find out more about defined-benefit plans, including your ability to file ERISA insurance and ERISA pension claims, from an experienced ERISA pension attorney if you believe you are being denied benefits that were promised to you and rightfully earned.
How Is the Defined Benefit Determined?
Some defined-benefits plans include a promise for a specific dollar amount. For example, you might have a promised benefit of $200 per month when you retire. More commonly, the defined benefit is calculated using some type of formula that involves factors such as your annual earnings, your age, or how long you worked with an employer.
As an example, a potential calculation might take 1% of your average monthly salary for the final five years you worked for an employer. That number might be multiplied by your total years of service to arrive at a promised benefit amount. If, for example, someone earned an average of $6,000 per month for the final five years of their service with a company, 1% would be $60 per month. If the person had 10 years of service with the company, the benefit would be $7,200.
You typically must meet eligibility requirements to earn the vested right to benefits contributed by your employer. That might mean working a certain number of years before you are fully vested. Part-time employees may be allowed to join the plan in some cases, and if they work a minimum number of hours a year, they have to be credited with a proportion of the benefits that a full-time employee might receive.
Can the Promised Benefits Be Reduced?
No, benefits you have already accrued in a defined-benefit plan cannot be reduced or taken away. However, the rate at which future benefits are accrued can be changed, which can lead to reduced benefits in the future.
For example, if a benefit is set up to accrue at a rate of $10 a month, the employer can decide to make a change to reduce the accrual rate to $8 a month starting at a certain period, such as July 2023. The $10 per month accrued prior to that date cannot be reduced once it has vested, but after July 2023, you would accrue benefits at the lower rate.
Defined-Benefit Plan Versus Defined-Contribution Plan
It is important to understand the difference between a defined benefit versus a defined contribution plan.
With a defined-contribution plan, you are not promised a specific benefit upon retirement. Instead, you can contribute to the plan via pre-tax contributions from your paycheck. Your employer also contributes funds to your account, either via a calculated benefit contribution amount or a contribution match.
You manage the investment of the funds in the account, and when you retire, you can start taking withdrawals from the total funds that have accumulated over time. One of the most familiar defined contribution plans is the 401(k).
What Is the Pension Benefit Guaranty Corporation?
The Pension Benefit Guaranty Corporation is a corporation chartered by the federal government for the purpose of guaranteeing some types of defined benefits. If your defined-benefit plan is covered by this guarantee, you will receive the promised benefits even if the plan itself is terminated.
The Pension Benefit Guaranty Corporation was created when the federal government passed the Employee Retirement Income Security Act of 1974, or ERISA. Other provisions of ERISA include required accountability of plans and the ability for participants to sue for their benefits or if they feel that a fiduciary duty has been breached by the administrators of a plan.
When to Consult an Attorney
You worked hard for your retirement benefits throughout the years, so you want to know that you can count on them to pay out as promised when the time comes. Many people base their plans for retirement, long-term care decisions, and other important financial choices on the hope that their benefits will pay out as planned, especially pension plan benefits that they have earned over time.
Unfortunately, sometimes there are issues with future pension benefits payments. They can range from clerical errors, such as someone calculating a benefit incorrectly, to serious bad faith that involves companies or plans not paying out what was promised, losing pension claims information, and not properly maintaining relevant pension plan documents. This problem is exacerbated by company mergers and acquisitions.
In these cases, working with an ERISA pension lawyer can help you fight for the benefits that are rightfully yours. A lawyer can help you understand why your benefits might be held up or not as much as you feel they should be. They can also help you navigate appeals and complaint processes and file a lawsuit if necessary to attempt to seek compensation for lost benefits, and/or you can bring breach of fiduciary duty claims, among other claims, under ERISA.
For more information on how experienced ERISA pension lawyers can help with ERISA pension claims and other employee benefits, contact the McKennon Law Group PC today.