What happens to my benefit if my company is sold or goes out of business?

What may happen to your benefit if your company is sold or goes out of business will depend on the specifics surrounding each scenario.  If the plan will terminate, federal law provides some measures to protect employees in both defined benefit and defined contribution plans. Current employees must become 100 percent vested in their accrued benefits as of the date of plan termination. This is true even if a plan’s vesting schedule requires a certain number of years of service from you before becoming 100 percent vested.  In other words, you will always have the right to all of the benefits that have been earned at the time of the plan termination, even those in which you were not vested and would have lost upon leaving the employer.

Your plan rules and investment choices are likely to change if your company merges with another and the existing plan merges with the plan of the new company.  However, the benefits that you have accrued cannot be reduced.  Talk with your plan administrator about your plan benefits in this scenario.

Some defined benefits plans are insured through the Pension Benefit Guaranty Corporation (PBGC) by the federal government. The PBGC guarantees payment of a participant’s vested pension benefits up to the limits set by law, for terminated defined benefit plans with insufficient funds to pay all of the benefits. 

The PBGC does not guarantee benefits for defined contribution plans. The plan’s trustees and fiduciaries are responsible for plan maintenance until the plan is actually terminated and paying out the assets as described above.

For further information about what may happen to plan benefits when a plan terminates or upon company merger, contact your Nyhart consultant.

This article was last updated on February 10, 2012

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