Also under the new law, an employee can opt out of survivor benefits only by providing his or her employer with a notarized waiver that has been signed by both the employee and the spouse. Under the old rules, workers could -- as Will Godhold did -- nix survivor benefits without the consent of their spouses.
New eligibility rules. In the past, employers were allowed to bar workers under the age of 25 from participating in company pension programs. The new equity act imposes tough new restrictions on this practice. It cuts from 25 to 21 the age at which workers must be included in any qualified pension program. Also, it reduces from 22 to 18 the age at which employers must begin counting employees' years of service for vesting purposes (the time workers must stay on the job before they are entitled to the pension money that accrues in their behalf).
Therefore, employers will be paying out more money than ever before to workers who resign or are fired before they retire. In fact, says Robert M. Siper, director of pension consulting services for KMG Main Hurdman, businesses with large numbers of young employees -- restaurants and retail stores, for example -- may find that their pension plans function as severance-pay programs for such employees as waiters and sales clerks.
Here is an illustration: Say a woman signs on with a company when she is 18 years old. She resigns six years later to take a job with a competitor. She is six months shy of her 25th birthday. Under the old rules, she would get nothing when she left -- unless her employer was more generous than the law required. Under the new law, she is entitled to the benefits accrued in her behalf (to the extent that she is vested) since she enrolled in the pension program at the age of 21.
New break-in-service regulations. The Retirement Equity Act also changes the rules governing pensions for employees who leave a company and then return months or years later. Suppose, for example, a 20-year-old man goes to work as a salesman for a chain of retail clothing stores. He works three years, then resigns and works somewhere else for four years. Afterward, he returns to his old job. It comes time to compute his years of service for vesting purposes. Does the company have to give him credit for those first three years he worked?
Under the old law, the answer was no -- the young man had incurred a "break in service." But under the new law, the answer is yes. The act says that if an employee leaves a job and returns, he or she must receive credit for that earlier period, unless the number of consecutive one-year breaks in service equals or exceeds five years or the number of pre-break years of service, whichever is greater.
New parents are accorded an even sweeter deal. The law allows them to take a full year of maternity or paternity leave without it counting as a break in service. That time can then be added to the five years allowed other workers, for a total of six years -- or until the child is old enough for first grade.
These new break-in-service provisions mean that businesses will have to maintain records for longer periods of time. "It's big enough pain to hold onto an employee's [records] for a year," notes Behrmann of Geo. S. Olive, "let alone keeping track of them for five years."
New divorce rules. Finally, there are new provisions for people who get divorced and are entitled to their exspouses' pension benefits. Millicent Goode is a case in point. Several years ago, her husband sued her for divorce after more than 25 years of marriage. She, in turn, sued for a portion of his $1,200-a-month pension. A court awarded her half of that amount. However, the employer didn't honor the court's ruling that payment be made directly to Mrs. Goode, and she ended up with none of the pension.
The act prohibits employers from ignoring such orders. The courts, the law states, have the authority to distribute a portion of a person's pension to a former spouse as part of a divorce settlement.
But the orders must meet certain standards. They must specify the name and address of the worker and ex-spouse. They must state how much the pension plan must pay (either as a percentage of the benefit or a dollar amount). And they must note when the payments have to start and how long they must continue.
Also under the law, a divorced spouse can begin collecting a share of the working employee's pension at the early retirement age, even if the employee hasn't retired. Hauser of Deloitte Haskins & Sells provides an example: Say a man is 55 years old (the early retirement age under his employer's plan), but he doesn't retire. His divorced spouse, however, wants to receive her portion of his pension right now. The company must honor her request. It pays her the pension benefits even though the man may not be entitled to any pension benefits until his actual retirement.
The changes mandated by the equity act may not be the last we will see. There is talk that Congress may cut in half the amount that companies can set aside for each employee's retirement (including the business owner's). Also, last year, legislation was introduced to force employers to vest workers in full after just five years on the job. Whether that bill will make it through Congress is anyone's guess. But the measure did carry a high-powered sponsor -- Geraldine Ferraro.
