Definition of "Employee retirement income security act of 1974 (erisa)"
Law that established rules and regulations to govern private pension plans, including vesting requirements, funding mechanisms, and general plan design and descriptions. For example, three ways of vesting were established: full vesting after 10 years of service (Cliff Vesting); five to fifteen year rule (at least 25% of benefits vest at end of 5 years of service, 5% each year during the next 5 years, and 10% each year during the next 5 years); and Rule of 45 (when employee's age and years of service add up to 45), 50% of the benefits must be vested with 10% additional vesting each year thereafter. Under the tax reform act of 1986, vesting requirements were changed to 100% vesting after 5 years of service or 20% vesting after 3 years of service, 40% at the end of 4 years of service, 60% at the end of 5 years of service, 80% at the end of 6 years of service and 100% at the end of 7 years of service. (These vesting requirements are effective as of January 1, 1989.)
Have a question or comment?
We're here to help.