The three biggest regulators of company, nonprofit, and union retirement plans
Three government agencies play major roles in ensuring that retirement plans are operated for the benefit of workers, with easy access to the plan, its tax breaks, and its ability to help build future wealth. These agencies include the U.S. Department of Labor’s Employee Benefit Security Administration (EBSA), the Internal Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC).
The EBSA, IRS, and PBGC have the authority and the reach to make sure the sponsors of a plan are following the rules. And when a plan is out of compliance, the agencies can charge fines and demand corrective action.
The Employee Retirement Income Security Act of 1974 (ERISA) is the federal law that establishes minimum standards for workplace retirement plans. And as the prime enforcer of ERISA, EBSA regulates all retirement plans offered to employees by businesses, unions, and nonprofit organizations.
One of EBSA’s responsibilities is to make sure that retirement plan sponsors are putting the interests of plan participants first when it comes to the operation of the plan. Under a concept called fiduciary duty, plan sponsors (the employers and unions that make retirement plans available) and the fiduciary service providers they hire are expected to make well-informed decisions, act with care, and avoid conflicts of interest.
Another of EBSA’s responsibilities is to make sure you get the information you need to stay informed about your plan and take appropriate action. ERISA’s disclosure rules dictate to plan sponsors what they need to tell employees and retirees about their retirement plan—and how they should communicate it.
While saving for the future is always a good idea, a workplace retirement plan is an especially good way to do it. In large part, this is because of the tax benefits you receive.
Fact is, employees can’t get the tax benefits of retirement plans unless the plan sponsors meet the requirements of federal tax law, the Internal Revenue Code. As the nation’s tax watchdog, the IRS is responsible for enforcing these rules, which cover:
- Who gets to participate in the plan (months of service, hours worked), and
- Whether lower paid employees are benefitting from the plan as much as higher paid ones (making sure the plan isn’t discriminating against some workers, even if it’s unintentional).
While defined benefit (DB) pension plans are great in theory, they can also be extremely expensive for employers to fund and maintain. That’s why this agency’s purpose is so important—primarily, to provide retirement benefits in the event an employer becomes insolvent or is unable to provide benefits under its DB pension plan.
Established under ERISA, the PBGC is similar to an insurance company. It covers private sector DB pension plans, collects premiums from these plan sponsors, and, in turn, ensures that participants and beneficiaries will receive their retirement plan benefits (up to a legal limit) if their plan can’t pay.
The PBGC runs two separate programs, both of which require the payment of premiums set by Congress.
One program is for private sector DB pension plans offered by a single employer. If one of these plans becomes insolvent or is unable to meet its obligations, the PBGC will take over and directly pay retirement benefits (again, up to a legal limit) to plan participants and beneficiaries as part of a distress or involuntary plan termination.
The second program is for multiemployer pension plans, in which unrelated companies join together to provide retirement benefits to workers under a collectively bargained agreement. If a multiemployer plan has financial difficulty, it continues to pay retirement benefits until it exhausts its assets. But rather than take over the operation of these plans, the PBGC provides financial assistance (generally, in the form of a loan) to these distressed multiemployer pension plans to be used to continue the payment of retirement benefits. Benefit payments can be reduced or suspended, per the PBGC, for insolvent multiemployer pension plans.
Even with these watchdogs, you need to stay informed about your retirement plan
All the agencies mentioned above are involved in ensuring that Americans get the retirement benefits that they’ve been promised, but it’s also important for you to know how your plan works and your rights as a participant.
Your plan website, email and regular mail from your employer and plan recordkeeper, webinars, and workshops are all great ways to stay up to speed. Try to take advantage of them all.
This content is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made herein.
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