Benefits and Compensation Glossary, 13th edition, International Foundation of Employee Benefit Plans, 2016)
A collectively bargained benefit plan is the U.S. that is maintained by more than one employer, usually within the same or related industries. Multiemployer plans, also known as jointly administered or Taft-Hartley plans, are governed by a board of trustees with labor and management equally represented. Members of the board of trustees are either elected or appointed to their positions. The board typically makes decisions about the types of benefits to be offered in the plan. Bargaining parties negotiate a contribution rate, and the trustees translate that rate into a benefit. Decisions to increase benefits or change the plan are also typically made by the board. In some industries (especially mining and segments of trucking), employers and unions set the benefit levels through collective bargaining. Multiemployer plans are subject to many of the same vesting, accrual and minimum participation rules that apply to single employer plans. The costs of administering a plan are paid from plan assets.
Defined benefit (DB) pension plan
An employee retirement plan established and maintained by an employer that uses a predetermined formula to calculate the amount of an employee’s retirement benefit. Early DB plans (referred to as flat benefit plans) were commonly a set dollar amount that was the same for all employees, regardless of their actual compensation, or a fixed percentage of an employee’s compensation. Any employee who worked for the company a minimum number of years received the same dollar amount or fixed percentage upon retirement. Today, DB plans and their formulas are more likely to take into consideration an employee’s years of service; such plans are called unit benefit plans. Employer contributions to DB plans are determined actuarially. No individual accounts are maintained, as is done for defined contribution plans. In the United States, ERISA and the Internal Revenue Code consider any plan that is not an individual account plan a defined benefit pension plan.
Defined contribution (DC) pension plan
A benefit program in which a specific amount or percentage of money is set aside each year for the benefit of an employee. With a DC plan, an individual retirement account is established with benefits based solely on 1) the amount contributed to the employee’s personal account plus 2) any income, expenses, gains, losses and forfeitures from other participants. Contributions to an account may be made by the employee or the employer or both. Defined contribution plans include 401(k), 403(b) and 457 plans.
Employee Retirement Income Security Act of 1974 (ERISA)
U.S. law that sets minimum standards for the protection of individuals in most voluntarily established pension, health and welfare plans within private industry. ERISA requires plans to 1) provide participants with important information about plan features and funding, 2) provides fiduciary responsibilities for those who manage and control plan assets, 3) requires plans to establish a grievance and appeals process by which participants can get benefits, and 4) gives participants the right to sue for benefits and breaches of fiduciary duty. ERISA established the Pension Benefit Guaranty Corporation - the insurance program designed to guarantee workers receipt of pension benefits if their defined benefit pension plan should terminate. There have been a number of amendments to ERISA including the Newborns’ and Mothers’ Health Protection Act of 1996, the Mental Health Parity Act of 1996 (MHPA), the Women’s Health and Cancer Rights Act of 1998 (WHCRA), and the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).
Multiemployer Pension Plan Amendments Act of 1980
Legislation that amended ERISA to strengthen the funding requirements for multiemployer pension plans. The act removes multiemployer plans from ERISA’s plan termination insurance system and substitutes a system that imposes liability for certain unfunded vested benefits when an employer partially or totally withdraws from a multiemployer plan.
Pension Protection Act of 2006 (PPA)
The most sweeping U.S. pension legislation since ERISA, the Pension Protection Act of 2006 included significant changes for enhancing and protecting retirement savings. Key provisions of the legislation:
- Established new minimum funding standards for pension plans
- Set forth rules governing the valuation of plan assets and liabilities; set forth special rules for at-risk plans, including certification and notice requirements
- Established additional requirements for annual reports to the secretary of labor
- Allowed the secretary of the Treasury to waive minimum funding standards in the event of a temporary hardship or if the standard would be adverse to the interests of plan participants in the aggregate
- Required the secretary of the Treasury to prescribe mortality tables to be used for determining any present value based on the actual experience of pension plans and projected trends in such experience
- Permanently extended the defined contribution provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001
- Created a new safe harbor for automatic enrollment of participants in 401(k) cash or deferred arrangements
- Make it easier for defined contribution sponsors to offer investment advice to plan participants
- Provided multiple exemptions to the prohibited transaction rules.