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Under the noncontributory type, the company will pay for the entire cost of an employee’s benefits. But, under a contributory plan, both the employee and employer share the cost. More often than not, com- panies have instituted contributory plans, where the cost to the employee ranges between 3 and 10 percent of annual income. The employer then generally matches what the employee has put in.

But, what if you leave the company? The ability and willingness to change jobs, and even careers, is higher now than it ever has been. So what do you do when you have money in a contributory pension plan and you leave that company for another one? You are legally entitled to at least the amount of money that you put in, adjusted for any profit or loss. Whether you qualify for the amount that your employer contributed is determined by the company’s policy.You can take the benefits as a lump-sum amount ( it being taxable plus a 10- percent penalty if you are younger than 591/2), you can roll it over into an IRA, or you can take it as monthly income once you are retired. Of course, the amount that is transferred may be more or less than the initial investment.

Companies also have established vesting rules (which occur when employees have a nonforfeitable right to their pensions). This gives some employees an added incentive to work longer. Prior to 1974, companies usually had vesting rules that stated that the employees had to be employed at the company for at least 25 years, or they received no pension benefits. The Employee Retirement Income Security Act of 1974 (ERISA) helped fix that by regulating the amount of time that the companies could set for vesting. Those rules were again updated in 1986 with the Tax Reform Act, which greatly benefited employees. Now, employers must choose between two vesting schedules. The first is called cliff vesting, and dictates that an employee is fully vested after no more than 5 years of service, but the employee receives no vesting privileges until that time. Once you’re fully vested, you have the right to all the money that has been paid in so far, yours and your employer’s, again adjusted for any profit or loss. The second schedule is a graded schedule. At the min- imum, you would begin vesting at your third year of employment at 20 percent. Each year, you would be vested by an additional 20 per- cent until you reached 100 percent after 7 years on the job. These

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