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What Happens If My Retirement Plans Change?

Reading time: 4 minutes

When you set up your plans for retirement, the money will be there when you need it, right? Unfortunately, there are no guarantees when it comes to that nest egg you've worked so hard to build. People change jobs and companies are bought by competitors or go out of business. These developments – often unexpected – can have an effect on retirement plans and pensions. Your retirement savings can also be impacted by budget legislation if you work in a job with a government pension.

Changing jobs

If you leave one job for another, you may be able to take some or all your retirement savings from your former employer with you, depending on the type of plan you had.

If you had a 401(k) account, your contributions to the plan go with you when you leave the job and, depending on your former company's plan, can be rolled over into a new 401(k) or IRA. If your employer offered matching funds, you may or may not be able to take that money with you, depending on the company's policy and how long you worked there. After a certain amount of time, the matching funds become fully “vested,” meaning they belong to you 100 percent.

Contact your employer's human resources department with questions about the company's policy regarding retirement benefits for former employees.

Employer changes to existing plans

If your employer switches plans or makes other big changes to your existing retirement benefits, the plan's administrator is required to notify you within 210 days of the end of the year in which a change was made. You'll be sent what's called a Summary of Material Modifications (SMM), which is a document explaining the changes and how they will impact your plan and your savings. It might not be the most thrilling read but be sure to review the materials carefully. If you don't understand any part of the SMM, contact your plan administrator or your company's human resources department.

Company merger or plan termination

When companies merge or go out of business, they're still on the hook to pay the benefits they promised to their employees. In the event of a merger, your plan may be combined with the acquiring company's plan, or the merger parties may decide to terminate one retirement plan and put all employees into the other company's plan. If that happens, you should still be able to keep the money you've already saved.

Employers are required to keep employee retirement funds separate from the company's money, which protects your account if the company goes bankrupt.

The Employee Benefits Security Administration (EBSA) is part of the U.S. Department of Labor and is responsible for making sure employers follow the laws regarding retirement plans and benefits. If your plan was terminated and you can't get in touch with the plan administrator to claim your benefits, visit askebsa.dol.gov or call the EBSA at 1-866-444-3272.

Pension freezes

If you work for an employer that offers a pension, you may have heard of the term “pension freeze.” A pension freeze means that employees cease earning pension benefits at the time the freeze goes into effect. Companies are allowed to change, freeze or eliminate their employee pensions for a number of reasons, as long as the employees can still get the benefits they've already earned.

Depending on the type, a pension freeze could affect you in three different ways:

  • Prevent you from earning further benefits under the plan
  • Stop your benefits from growing
  • Stop you from earning pension credit for future years of work, though your benefits would be calculated based on your pay when you leave the company, rather than your pay at the time the plan was frozen

If a pension freeze goes into effect after you've already retired, you shouldn't see any changes to your benefits. You've earned them, so the company is required to pay them.

If you're still employed with the company when a freeze goes into effect, you'll keep the benefits you've already earned, but you won't be able to earn any more until the freeze is lifted.

If your employer's pension plan runs out of money to pay the benefits you've earned, you may be protected by the Pension Benefit Guaranty Corporation, an independent agency of the federal government that pays benefits to former employees of companies whose pension plans failed.

Remember, it's not usually a good idea to put all of your retirement eggs in one basket. A solid strategy generally involves a combination of your employer's retirement plan, your own savings and investments, and Social Security benefits (if you qualify).

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