Quiz 27: Other Legal Requirements


Pension Plans refers to the plans established by employer with an intention to provide income to employees after retirement to meet their daily needs. The pension plan established by employer as per ERISA guideline involves Joint and Survivor Notifications as per which an employee in case of both benefit plan and contribution plan is to be notified about the survivor benefits. Notification for such postretirement survivor benefit is to be provided nine months before the earliest retirement date under the plan. As such, an employee on the first date of achieving 32 years of age is eligible to get such notification by the employer until 35 years of age attained. The employer is provided with such information only after attaining the age of 32 years as because this is the time after which the employee is allowed to take earliest retirement. As such, notification is not required to be given before 32 years of age even though the employee gets eligible for the benefit.

Title I of ERISA contains labour law provisions that are similar in nature as compared to the tax law provisions prevailing at the time. It deals with proper disclosure and reporting of all the information regarding the pension plan to its participants as well as the government. This disclosure is compulsory to be made for each tax qualified plan. The disclosure documents required to be presented to the government for such plans are as follows- 1. Summary Plan Description (SPD) that consists of folder or booklet describing every aspect of the plan to its participants. 2. Summary of Material Modifications (SMMs) which provides a summary of any changes or modifications or amendments made in the plan information should also be provided along with SPD. 3. The annual financial report of the plan as per the provisions of Pension Protection Act 2006 using Form 5500 which will be made available for public view within 90 days of filling. These are the documents required to be disclosed to the government however there is another set of documents that has to be provided to the employees if required by them.

Earmarked Investment under section 404(c) of IRC refers to the investments in which employees are allowed to transfer the investment to their own account. These types of investment is available in case of defined contribution approach where the employer aims at encouraging the individuals to save more and as such tends to provide them investment education. As per the rules of ERISA, education should be given by keeping in mind the difference between advice and education so that no liability is levied on them. Department of Labour (DOL) has stated certain information related to investment that can be provided by employer without any risk of liability. These are known as safe harbours, they are- 1. General plan provisions. 2. General financial and investment information. 3. Asset allocation model. 4. Interactive investment material. However, these safe harbours can be applied only when this models stated above is based upon generally accepted investment theories and the assumptions that are made for such model should also be clearly stated. Apart from this, if any particular investment option is specified in the plan then information such as risks and returns about other alternative investment option must also be provided. Later in 2007 Pension Protection Act allowed services by employer of providing advices in return for fee which was previously prohibited under ERISA but the liability still applies to those services. Thus, DOL stated the importance of investment education for the participants and framed safe harbours as per which this education could be provided keeping in view the responsibilities of the employers while utilising such harbours.

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