I work at a national chain that recently filed bankruptcy protection as they try to reorganize. They have since announced they’re closing several locations as part of the reorganization. I’ve worked for them for 18 years and all my retirement savings are tied up in their pension plan. If I’m fired, will I lose it all?
This has become an increasingly asked question in the past year since former FBI deputy director Andrew McCabe was fired just hours before he was set to retire. But it’s a good question to ask any time, according to employment lawyer Cheryl Gill.
Erisa protects your retirement income
The Employee Retirement Income Security Act, sometimes called ERISA, provides important protections should you be terminated prior to retirement. “Essentially, ERISA ensures you keep everything you’ve contributed toward your pension,” says Gill. “But your employer may be able to take away its matching contributions depending on how vested you are in their retirement plan.”
If you are not vested at all, your employer may keep its matched dollars. If you are partially vested—say 30 percent—you may keep a corresponding percentage—in this case 30 percent—of the employer’s contributions. So if you are fully vested, you will keep 100 percent of your employer’s matching contributions.
Employers have their own rules about pensions
Employers have their own rules about their pension plans, says Gill. “Most require a certain length of employment, like 10 years, and many phase in over time, so you may be 25 percent vested after two years, 50 percent at five years and so on.”
Additionally, some employers set up their plans to allow for an early cash payout so they don’t have to continue managing your funds once you’re terminated. Others give you a choice. Either way, cautions Gill, be sure to roll those funds into a new retirement plan or you could face tax and penalties up to 30 percent of the total funds depending on your age.
Regardless of whether you fear losing your job, it’s smart to understand your company’s benefits package. Check with your employer to learn the rules specific to your workplace.
Information provided by Cheryl Gill, employment law attorney at Johns, Flaherty & Collins, SC. For more information about employment laws, call her at 608-784-5678.