As you prepare for your retirement, you want to make sure that you are aware of the many different retirement plans and what they both entail and require. You’ll find that these plans have a lot of different facets, so you need to be well-informed of all the particular details pertaining to the policy you choose. To help guide your research, we’ve prepared some of the most common questions and their answers here.
What are the types of retirement plans?
While you can have plans customized to your exact situation and needs, there are two predominant types of retirement plans: defined benefit and defined contribution plans. Defined benefit plans guarantee the individual a specific monetary amount each month upon retirement. Defined contribution plans are less specific, and the monthly amount varies based on the individual, their choice of contribution, and the way in which they want their contributions invested.
What are the most important elements of a retirement plan?
There are several essentials that each retirement plan must have. Broadly, these are a written plan that describes the day-to-day operations and structure of the retirement benefits and how they are to be disbursed, the specifics of the trust fund holding the assets of the plan, a recordkeeping and money-monitoring system, and plan documentation for records and tax purposes.
When does an employee become part of a retirement plan?
It varies from plan-to-plan, but generally, plans mandate that an employee be at least 21 years old and have a year of work experience with a company before he or she can take part in a retirement plan.
What is “vesting?”
Vesting refers to an employee earning their benefits from their employer without risking their forfeiture. While employees are, naturally, entitled to the benefits that they themselves provide for, they are not automatically entitled to those provided by their employer. Time is a factor in this entitlement, and plans may have a stipulation that prevents vesting for a certain number of years, up to a cap mandated by the federal government.
What are fidelity bonds?
Fidelity bonds are a crucially important part of insurance protection. Fidelity bonds cover a policyholder in the case of fraudulent action by an individual who manages the funds held under a benefits plan. For example, a business can acquire fidelity bonds to protect them if an employee commits benefit fraud or any other type of illegal behavior that causes the business to suffer a loss.
What is a “fiduciary?”
A fiduciary of a plan is the person or persons in charge of operating the plan. For example, discretionary operating or controlling of the assets under a retirement plan makes you a fiduciary (to the extent of your discretionary ability). Not all decisions count as fiduciary actions, however. Making a business decision with regards to your provision of a retirement plan is simply a business decision. However, implementing that retirement plan does make you a fiduciary.
What responsibilities do fiduciaries have?
Fiduciaries are responsible for carrying out the duties of the plan and acting in the interest of the participants of the plan — and no other outside member. Fiduciaries provide benefits, follow plan rules and documents, pay expenses pertaining to the plan, and diversify and manage the plan’s investments. With this weight of responsibility comes the necessity that fiduciaries be bonded and insured through risk management services like Oros Risk Solutions, though this is less of a consideration for individuals than it is for managed employee retirement plans or other financial stewards.
As you navigate your options when it comes to retirement plans, this should help you make some sense of the terms, as well as your options. The best decisions are always informed decisions.