Learn about ERISA standards for pension funds and how minimum service requirements can violate the law for defined benefit plans. Expert insights for SHRM-SCP exam prep.
Table of Contents
Question
Which situation violates the Employee Retirement Income Security Act’s standards for pension funds?
Answer
Employees are required to have a minimum of 15 months of service before they can participate in their employer’s defined benefit plan.
Explanation
The correct answer is that requiring employees to have a minimum of 15 months of service before they can participate in their employer’s defined benefit pension plan violates the Employee Retirement Income Security Act (ERISA) standards.
ERISA sets minimum standards for participation, vesting, benefit accrual and funding for voluntary established retirement plans in private industry. For defined benefit plans, ERISA specifies that an employee’s right to participate in the plan must be non-forfeitable after no more than 12 months of service.
So by requiring 15 months minimum service for employees to participate, this employer’s defined benefit plan fails to meet ERISA’s maximum 12-month participation requirement. The plan must allow employees to participate and start earning benefits within 12 months to comply with ERISA pension regulations.
While employers can impose a minimum age of 21 for defined benefit plan participation, they cannot require more than 12 months of service for employees to join the plan. Violating this 12-month rule fails to meet ERISA’s minimum standards intended to protect employees’ pension rights and ensure sufficient opportunity to accrue retirement benefits.
In summary, ERISA caps the maximum service requirement for defined benefit plan participation at 12 months, so requiring 15 months of service violates this important employee protection standard. HR professionals must ensure their defined benefit plans meet all ERISA rules.
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