401k Plan Fiduciary Responsibilities

The Pension Benefit Guaranty Corporation (PBGC) - What It Is & How It Works

Is the management of your company's retirement plan in Violation of ERISA Responsibilities?

When managing a 401k plan, there are numerous responsibilities. Of all the important aspects of a retirement plan - even more than the investment choices offered, employee participation, or employer match - is the fact that your retirement plan must be in compliance with ERISA.

The ABCs of the PBGC

With all the questions in the last few years surrounding corporate misconduct, the questionable actions of some CEOs, and big-name company bankruptcies, it may be time for a quick refresher on the Pension Benefit Guaranty Corporation (known as the PBGC.)

The PBGC was part of landmark pension legislation in the early 1970s known as the Employee Retirement Income Security Act, or ERIS.A
The PBGC has remained a relative constant over the years.
It was created to protect and insure pension benefits of employees.

So, if your employer goes out of business, and the company retirement plan disappears, the PBGC will step in to pay your pension benefit.
Contrary to some very bad reporting by some very bad journalists, however, 401k is NOT protected by the PBGC.
PBGC insurance only covers defined benefit plans—those that promise to pay you a specific monthly benefit at retirement. (And, over the past several years, defined benefits plans have become rare).
Therefore, if your employer offers just a 401k, a defined contribution plan, the PBGC will not protect your retirement benefits.
Said differently, those folks at Enron who put all their 401k money in Enron stock instead of diversifying into various investments have learned a very expensive investing lesson.
If you choose greed over diversification, you might feel great in the short run.
But you’ll feel both lousy and broke in the long run.
It’s your choice . . . choose well.

So, how and where does the PBGC get the money to pay for benefits?
The answer—mainly from insurance premiums charged to your employer.
That of course, begs another question:
However, if employers are unable to pay this insurance premium, you are still covered.

Keep in mind, however, that the PBGC will not increase your pension yearly for inflation.
Therefore, even though you will receive your benefit, the amount will not increase year to year.

More regulations: 404c

Fidelity Investments Fidelity Advisor 404c laws Regulations Atlantic Financial PDF

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Click this PDF document Fidelity Investments Fidelity Advisor 401k Plan Proposal Atlantic Financial PDF

Atlantic Financial can help your company in a variety of ways - we can set up new 401k plans or administer existing 401k plans.
We can also help your company serve former employees by transferring them out of your plan and into their own IRA account with an IRA Rollover - it's better for the participants and saves the company money as well.

For more information: please call 1-800-559-2900, or email Atlantic Financial or contact us

Back to beginning of the 401k Plan: What is the Pension Benefit Guaranty Corporation (PBGC)?

See Also: Are You in Violation of Your ERISA Responsibilities? and ERISA Act

Sources and Disclosures

Source: Pension Benefit Guaranty Corporation (PBGC) www.pbgc.gov