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Pension Benefits: ERISA Rules

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in Employee Benefits Program,Employment Law,Human Resources

Pension plans fall into two major categories: qualified and nonqualified plans. Qualified plans meet the requirements of ERISA and the Internal Revenue Code and qualify for four significant tax benefits:

  1. Income generated by the plan assets is not subject to income tax because it is earned and managed within the framework of a tax-exempt trust.
  2. An employer is entitled to a current tax deduction for plan contributions.
  3. Plan participants do not have to pay income tax on the amounts contributed on their behalf until the year the funds are distributed to them.
  4. Under the proper circumstances, beneficiaries of qualified plan distributions are afforded special tax treatment. 

By contrast, nonqualified plans don’t meet ERISA and IRC guidelines and, as such, have no preferential tax treatment. Nonqualified plans are usually designed to provide deferred compensation exclusively for one or more exe...(register to read more)

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