ERISA

Federal law governing private-sector employee benefit plans and their fiduciaries.

Retirement Plans, Accounts & Trading Series 65 · Section 3

What is ERISA?

The Employee Retirement Income Security Act covers private employer plans, not government or church plans. Plan fiduciaries must act solely in participants' interest, with the care of a prudent expert, diversify plan investments, and follow the plan documents. Under Section 404(c), fiduciaries get relief from liability for participants' own investment choices if the plan offers at least three diversified options with different risk and return characteristics and gives participants adequate information and control.

ERISA: a worked example

A plan offering only company stock and a money market fund does not qualify for 404(c) protection.

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More terms in Retirement Plans, Accounts & Trading

IRA Rollovers vs. Transfers 60-day rollovers are limited to one a year; direct transfers are unlimited. 10% Early Withdrawal Penalty & Exceptions Distributions before 59 1/2 cost 10% extra, unless an exception applies. Solo 401(k) A 401(k) for a self-employed owner with no employees other than a spouse. Defined Benefit Plan A pension promising a specific benefit; the employer bears the investment risk. Defined Contribution Plan An individual account plan whose payout depends on contributions and returns. 403(b) Plan A salary-deferral plan for public schools and 501(c)(3) nonprofits. 457 Plan Deferred compensation for state and local government employees. SIMPLE IRA A low-cost plan for employers with 100 or fewer employees.

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