Pensions and retirement plans are governed primarily by federal laws. Nearly two dozen statutes touch on some aspect of retirement, but most involve the Internal Revenue Service or the Department of Labor and provide legal underpinning for specific rules and regulations. Most deal with eligibility, taxes and funding guarantees, but even federal bankruptcy laws touch on retirement funds.
The most important law dealing with retirement accounts is ERISA -- the Employee Retirement Income Security Act of 1974. This sets minimum standards for retirement plans, covering such things as rules for participation; accountability for funds; and vesting, which is the period before an employee is fully entitled to funds. This law also created the Pension Benefit Guaranty Corp. to insure benefits, and the Employee Benefits Security Administration in the Department of Labor.
The IRS has established a number of retirement plan options under its basic taxing authority. These include both traditional and Roth individual retirement accounts, and employer-sponsored plans such as 401(k), 403(b), 457(b), profit-sharing and employee stock ownership plans and traditional pensions, called defined-benefit plans.
Plans Not Required
No federal laws require governments or private employers to establish pension or retirement programs. Laws simply set standards and rules for such plans and protection for participants from loss or abuses. Programs for government workers and military servicemen are governed both by specific laws, such as the uniformed services employment act, and by IRS regulations.
A 2005 change in the federal bankruptcy law exempts almost all pension plans and retirement accounts from seizure by creditors in either Chapter 7 or Chapter 13 bankruptcies. An exception to this total exemption is traditional and Roth IRAs. However, that exception protects IRA balances up to more than $1 million, which effectively covers most workers. An employer bankruptcy for liquidation of assets may terminate a retirement plan, but individual accounts are still protected.
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