Page 188 - Group Insurance and Retirement Benefit IC 83 E- Book

remain with the employee, but employer contributions and earnings on them do not vest

with the employee until a specified period has elapsed), even if he or she transfers to a
new job or decides to retire early, whereas in many countries defined benefit pension

benefits are typically lost if the worker fails to serve the requisite number of years with
the same company. Self-directed accounts from one employer may usually be 'rolled-

over' to another employer's account or converted from one type of account to another in
these cases.

Because Defined contribution plan have actual balances, employers can simply write a
check because the amount of their liability at termination of employment which may be

decades before actual normal (65) retirement date of the plan, is known with certainty.

There is no legal requirement that the employer allow the former worker take his money
out to roll over into an IRA, though it is relatively uncommon in the US not to allow this.

Just like there is no legal requirement to give portability to Defined contribution plan,
there is no mandated ban on portability for defined benefit plans. However, because the

lump sum actuarial present value of a former worker's vested accrued benefit is uncertain,
the IRS mandate in Section 417(e) of the Internal Revenue Code specifies the interest and

mortality that must be used. This uncertainty discussed in valuaton of defined benefit
lump sums has limited the practical portality of defined benefit plans.

Investment Risk borne by Employee or Employer

It is commonly said that the employee bears investment risk for Defined contribution

plan while the employer bears that risk in defined benefit plans. This is true for
practically all cases, but pension law in the United States does not require that employees

bear investment risk, it only provides an ERISA Section 404(c) exemption
from fiduciary liability if the employer provides the mandated investment choices and

gives employees sufficient control to customize his pension investment portfolio

APPROPRIATE to his risk tolerance.

PBGC insurance: a legal difference

The Employee Retirement Income Security Act (ERISA) does not provide insurance

from the Pension Benefit Guaranty Corporation (PBGC) for Defined contribution plan,