Definition The Employment Retirement Income Security Act (ERISA) is a federal law enacted in 1974 to protect the retirement assets of American workers. It sets standards for pension and health plans in private industry, ensuring that plan fiduciaries do not misuse plan assets and that participants receive the benefits they are entitled to. ERISA does not require plans to be established but regulates those that are.
Key Components of ERISA ERISA encompasses several critical components that define how retirement plans operate:
Definition Financial wellness initiatives are comprehensive programs aimed at enhancing individuals’ financial well-being. These initiatives focus on providing the necessary tools, resources and education to help individuals manage their finances effectively, ultimately leading to a more secure financial future.
Components of Financial Wellness Initiatives Financial wellness initiatives typically include several key components:
Education and Awareness: Providing workshops, seminars and online resources to educate individuals about personal finance, budgeting and investment strategies.
Definition Financial literacy programs are structured educational initiatives designed to equip individuals with the knowledge and skills necessary to manage their finances effectively. These programs cover a wide array of topics, including budgeting, saving, investing and understanding credit and debt. The ultimate goal is to empower participants to make informed financial decisions, enhance their financial well-being and achieve their long-term financial goals.
Components of Financial Literacy Programs Budgeting: Teaching individuals how to create and manage a budget to track income and expenses effectively.
Definition The Employee Retention Credit (ERC) is a tax incentive provided by the federal government aimed at helping businesses retain their employees during challenging economic times, especially during events like the COVID-19 pandemic. This credit allows eligible employers to receive a refundable tax credit for a percentage of wages paid to employees who are retained on payroll, even if they are not actively working.
Key Components of the ERC Eligibility Criteria: To qualify for the ERC, businesses must meet specific criteria, including having experienced a significant decline in gross receipts or being fully or partially suspended due to government mandates.
Definition The Saver’s Credit, also known as the Retirement Savings Contributions Credit, is a valuable tax incentive designed to encourage low to moderate-income individuals to save for retirement. This credit can significantly reduce your tax liability, making it an essential component of effective financial planning.
Key Components of Saver’s Credit The Saver’s Credit is composed of several key components that determine its applicability and benefits:
Eligibility Criteria: To qualify for the Saver’s Credit, you must meet specific income thresholds, which are adjusted annually.
Definition A Cash Balance Plan is a type of employer-sponsored retirement plan that combines elements of both defined benefit and defined contribution plans. Unlike traditional defined benefit plans, where the retirement benefit is determined by a formula based on salary and years of service, Cash Balance Plans define benefits in terms of individual account balances. Each employee has a hypothetical account that grows annually based on a specified interest crediting rate and contributions determined by the employer.
Definition A Deferred Compensation Plan is an arrangement between an employer and an employee that allows the employee to defer part of their income until a later date, typically until retirement. This can be a strategic financial tool for high earners who want to minimize their current tax burden while saving for the future.
Components of a Deferred Compensation Plan Deferral Amount: Employees choose how much of their income they wish to defer, which can be a fixed amount or a percentage of their salary.
Definition An Employee Stock Ownership Plan (ESOP) is a type of employee benefit plan that provides workers with an ownership interest in the company. It is a form of employee ownership that is designed to align the interests of employees and shareholders, motivating employees to contribute to the company’s success. ESOPs are unique because they are not just a retirement plan; they enable employees to own shares of the company, often at no upfront cost.
Definition A Money Purchase Pension Plan (MPPP) is a type of employer-sponsored retirement plan that requires fixed contributions to be made by the employer, usually expressed as a percentage of an employee’s salary. Unlike other pension plans that may have benefits tied to the employer’s financial performance, MPPPs offer a more predictable savings approach for retirement, as the contributions are predetermined.
Components of a Money Purchase Pension Plan Employer Contributions: Employers are required to make annual contributions to the plan, which is usually a fixed percentage of each participating employee’s salary.
Definition Non-Qualified Deferred Compensation (NQDC) Plans are arrangements that allow employees to defer a portion of their salary or bonuses until a later date, typically retirement. Unlike qualified plans, such as 401(k)s, NQDC Plans do not have to comply with IRS contribution limits or ERISA regulations, providing both employers and employees greater flexibility.
Key Components Deferral Amounts: Employees can choose how much they want to defer, which can be a percentage of their salary or a specific dollar amount.