292 Human Resources Management for Public and Nonprofi t Organizations
associated with funding defined - benefit plans. Some states, including
Illinois and Florida, are now providing state employees with the option
of enrolling in a defined - contribution plan instead of requiring them
to become part of the defined - benefit pension. In Florida, the annual
employer contributions will be 9 percent for most employees, and law
enforcement will receive employer contributions of 20 percent due to their
more generous pensions.Vesting
Vesting occurs when contributions made to a retirement plan belong to
the employee. For most defi ned - benefi t pension plans, an employee who
leaves the organization retains the nonforfeitable right to those benefi ts on
retirement. However, an employee may be required to wait until retire-
ment before receiving the benefi ts. Most defi ned - contribution pension
plans allow the employee to take the accrued amount when they leave the
organization in a lump - sum payment that is taxable.
Vesting standards for nonprofit and private organizations were
amended as part of the Tax Reform Act of 1986. New minimum standards
went into effect in 1989 that enable employees to become fully vested in
their pension plans after fi ve years of service, or they may be 20 percent
vested after three years of service, 20 percent for each year thereafter, and
100 percent after seven years of service.
In the public sector, wide variations exist as to when employees are
entitled to vested benefits. In some plans, employees are required to
work fi ve years before benefi ts are guaranteed. Other plans require ten
years of plan participation before vesting occurs. Employees considering
employment in another organization covered by a different retirement
system should fi nd out whether they meet the minimum requirement for
vesting.
Retirement systems at the federal, state, and local levels have special
provisions for public safety offi cers. They can retire at an earlier age with
full benefi ts after shortened working careers.
The Employee Retirement Income Security Act of 1974 (ERISA) safe-
guards the pensions of nonprofi t and private sector employees. ERISA sets
minimum standards to ensure that employee benefit plans are financially
sound so that employees receive the benefi ts promised by their employers.
ERISA does not cover plans established or maintained by government entities
or churches. Three federal government agencies share responsibility for the
administration and enforcement of ERISA provisions: the U.S. Department