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RETIREMENT PLANS FAQ #5

5. Taking Your Retirement Benefit With You

If you leave an employer before you reach retirement age, whether or not you can take your benefits
out and/or roll them into another tax-qualified plan or account will depend on what type of plan you are
in.

If you leave before retirement, can you take your retirement benefit with you?
If you are in a defined benefit plan (other than a cash balance plan), you most likely will be
required to leave the benefits with the retirement plan until you become eligible to receive them. As a
result, it is very important that you update your personal information with the plan administrator
regularly and keep current on any changes in your former employer’s ownership or address.

If you are in a cash balance plan, you probably will have the option of transferring at least a portion of
your account balance to an individual retirement account or to a new employer’s plan.

If you leave your employer before retirement age and you are in a defined contribution plan (such
as a 401(k) plan), in most cases you will be able to transfer your account balance out of your
employer’s plan.

What choices do you have for taking your defined contribution benefits?

A lump sum – you can choose to receive your benefits as a single payment from your plan, effectively
cashing out your account. You may need to pay income taxes on the amount you receive, and
possibly a penalty.

A rollover to another retirement plan – you can ask your employer to transfer your account balance
directly to your new employer’s plan if it accepts such transfers.

A rollover to an IRA – you can ask your employer to transfer your account balance directly to an
individual retirement account (IRA).

If your account balance is less than $5,000 when you leave the employer, the plan can make an
immediate distribution without your consent. If this distribution is more than $1,000, the plan must
automatically roll the funds into an IRA it selects, unless you elect to receive a lump sum payment or
to roll it over into an IRA you choose. The plan must first send you a notice allowing you to make other
arrangements, and it must follow rules regarding what type of IRA can be used (i.e. it cannot combine
the distribution with savings you have deposited directly in an IRA). Rollovers must be made to an
entity that is qualified to offer individual retirement plans. Also, the rollover IRA must have investments
designed to preserve principal. The IRA provider may not charge more in fees and expenses for such
plans than it would to its other individual retirement plan customers.

Please note: If you elect a lump sum payment and do not transfer the money to another retirement
account (employer plan or IRA other than a Roth IRA), you will owe a tax penalty if you are under age
59½ and do not meet certain exceptions. In addition, you may have less to live on during your
retirement. Transferring your retirement plan account balance to another plan or an IRA when you
leave your job will protect the tax advantages of your account and preserve the benefits for retirement.

What happens if you leave a job and later return?
If you leave an employer for whom you have worked for several years and later return, you may be
able to count those earlier years toward vesting. Generally, a plan must preserve the service credit
you have accumulated if you leave your employer and then return within five years. Service credit
refers to the years of service that count towards vesting. Because these rules are very specific, you
should read your plan document carefully if you are contemplating a short-term break from your
employer, and then discuss it with your plan administrator. If you left employment prior to January 1,
1985, different rules apply.

If you retire and later go back to work for a former employer, you must be allowed to continue to
accrue additional benefits, subject to a plan limit on the total years of service credited under the plan.

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