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Home » Legal Articles » Things To Know About Your Retirement Plan

Things to Know About Your Retirement Plan

Private employers offer retirement plans to its workers to enable them to have financial security in the future. To know what awaits you in retirement, you should first understand how your plan works and what benefits you will receive.

There are two common types of retirement plans that most employers offer:

• Defined benefit plan

It is retirement plan being funded by the employer, which promises you a specific monthly benefit at retirement. Benefits from this plan are calculated using factors such as age, salary, and the number of years you worked in the company.

• Defined contribution plan

It is a plan funded by you and your employer's contributions to your individual account in the plan. In this kind of plan, you are responsible for choosing where to invest your contribution and decide on how much can be deducted from your paycheck. Your employer will add to your account by matching a certain percentage of your contribution. You will receive the balance of your account upon retirement, which will reflect gains or losses from the investment, the amount of contributions made, and any fees charged to your account.

How to participate and earn your retirement benefits

After knowing what kind of retirement plan your employer, is offering, you must know how to participate in it to start earning your retirement benefits.

• First, find out if you are within the group of employees covered by the employer's retirement plan.
• Find out how to participate and contribute to your retirement plan after you start working in the company.
• Read the Summary Plan Description of your plan.
• Learn how to start earning benefits and how much your retirement benefits will be.

When do you start to receive your retirement benefits?

Under the law, you begin to receive your retirement benefits when you reach age 65 or the age your plan considers to be normal retirement age, or equivalent to 10 years of service.

However, in determining when you can receive benefits, three things must be considered:

• The start of receiving benefits from plans is provided for by the guidelines in the federal law.
• Plans can choose when to begin paying benefits as expressed in the plan documents.
• A claim for benefits must be filed to initiate payment of the benefits.

In filing for a benefits claim, the law requires all plans to have a written procedure in the Summary Plan Description. The document will also show a guide on how to file an appeal in case a claim is denied.

Some retirement plans offered by employers are governed by federal laws and guidelines in the Employee Retirement Income Security Act of 1975 (ERISA) and the Internal Revenue Code. On the other hand, the plan rules and regulations are contained in the Summary Plan Description.

If the plan failed to follow certain requirements of ERISA or claim is denied, you may seek the legal advice of a retirement benefits attorney. A retirement benefit attorney is an experienced lawyer who can best address your issue or concern.

And here is another random article you might be interested in...

The 8 Biggest Mistakes When Designing Portfolios - and How To Avoid Them

Are you as good an investor as you think? Do you consider yourself a well-informed investor able to anticipate and avoid nearly all pitfalls associated with investing? Chances are, you are making one of the common errors that could cost you hundreds or even thousands of dollars, or worse yet, your financial independence, control and security.

"I see people making the same costly mistakes over and over," says Scott Frush, CERTIFIED FINANCIAL PLANNER and author of Optimal Investing: How To Protect and Grow Your Wealth With Asset Allocation (Marshall Rand Publishing; available by calling 1-800-247-6553). "But small leaks can sink great ships."

Scott Frush is president of Frush Financial Group and editor of the Journal of Asset Allocation. Discover some of his investment secrets in the free report, 15 Golden Rules for Building Optimal Portfolios, available at www.AssetAllocationExpert.com.

Here Scott Frush shares eight common, yet costly, mistakes investors make when designing their investment portfolios and reveals how to avoid them.

1. OMITTING APPROPRIATE ASSET CLASSES AND ASSET SUBCLASSES. Numerous landmark studies have concluded that how you allocate your portfolio, rather than which investments you select or when you buy or sell them, determines the majority of your investment performance over time. As a result, make every effort to allocate your portfolio to all appropriate asset classes and asset subclasses.

2. SELECTING INAPPROPRIATE ASSET CLASS WEIGHTINGS. By selecting inappropriate asset class weightings a portfolio may earn a lower return and experience greater risk than expected. Consequently, be careful not to over or under weight any asset class, thus enhancing your portfolio's risk and return trade-off profile.

3. UNDERESTIMATING THE IMPACT OF INFLATION. Inflation can erode the real value of your portfolio over time, thus placing your future financial security at risk. As a general rule, the longer your investment time horizon, the more you should allocate to equity investments. For shorter investment time horizons, emphasize fixed-income and cash and equivalent investments.

4. NEGLECTING THE EFFECTS OF PORTFOLIO MANAGEMENT EXPENSES. Over time, the compounding effect of portfolio management expenses can be quite large, thus depriving you of better returns. For this reason, you should focus on minimizing portfolio management expenses, specifically trading costs, advisory fees and taxes.

5. MAKING INACCURATE RETURN FORECASTS. Forecasting is the single most difficult task with designing portfolios. Although not a perfect solution, using historical returns rather than making forecasts is generally considered more appropriate for individual investors.

6. OVERESTIMATING THE LEVEL OF PORTFOLIO DIVERSIFICATION. Diversification is one of the ten cornerstone principles of asset allocation and is key to reducing risk, namely company-specific risk. To properly diversify, you should hold sufficient quantities of not-too-similar securities with comparable risk and return trade-off profiles. Consider broad-based index funds for a quick and easy solution.

7. MISJUDGING THE IMPACT TAXES HAVE ON NET RETURN. Taxes can have a severe negative impact on your net return. As a result, balance tax and investment considerations, but remember that suitability and appropriateness of an investment take precedence over tax consequences. Never hold an inappropriate investment.

8. CONFUSING DIVERSIFICATION WITH ASSET ALLOCATION. Many investors mistakenly believe that a properly diversified portfolio is a properly allocated portfolio. This is the leading misconception of asset allocation. Properly allocate your portfolio among the different asset classes first and then diversify the investments within each asset class.

By avoiding these biggest mistakes you will design an optimal portfolio that provides the best opportunity to achieve and protect your financial independence, control and security.