Pensions and Investments Law

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 What Are Pensions and Investments?

Pensions and investments are financial tools people use to prepare to provide income for themselves in retirement. Not all employers offer pensions, but those who do, contribute money to the pension plan while the employee is still working. Once the employee reaches retirement age and retires from the company, the money is paid to the employee in the form of a monthly check.

The standard pension would pay the former employee until the end of their life. In some cases, the pension may continue paying a monthly benefit for a surviving spouse or other beneficiary.

Most pension plans have been replaced by employers with 401(k) retirement plans. This type of investment offers the employee various options for saving money from their income and investing it for their future retirement. Many employers make a contribution to an employee’s 401(k) account, sometimes matching the amount the employee saves from their income. Usually, the 401(k) account is maintained with a company that offers a number of investment options for the funds in a 401(k).

Because most 401(k) investment plans do not provide a way to invest that promises investments free of the risk of loss and a guaranteed income in retirement, some employers now offer an option within a 401(k), called a qualified longevity annuity contract (QLAC). An employee is allowed to invest in this and set up a guaranteed source of income for their retirement, something like a pension.

Keep in mind that many financial experts estimate that a person may need retirement income that equals as much as 85% of the income they earned before retirement. Achieving this goal requires saving and careful planning.

An individual retirement account (IRA) is another type of retirement investment that gives people a tax break for investing money in the account for their retirement. An IRA is an account maintained with a financial institution that allows a person to save for retirement with two important tax advantages. One is the tax-free growth of the money invested in the IRA. So, if the investment account realizes gains in any given year, the owner does not have to pay taxes, such as capital gains tax. The other is the fact that income deposited in an IRA is not subject to income tax in the year it is received.

The 3 main types of IRAs and the advantages of each are as follows:

  • Traditional IRA: With a traditional IRA, a person makes contributions from their income to an IRA account. They may be able to deduct the amount from their income on their income tax return. The money can be invested in a variety of ways, and any earnings can grow tax-deferred, until the person withdraws money from the IRA at a later time. The law allows withdrawals after a person reaches the age of 59 and a half. Money can be withdrawn at an earlier age, but a person would pay a 10% penalty and would have to add the withdrawn amount to their income in that year, so it would be taxed.
    • An IRA is supposedly advantageous as many retirees find themselves in a lower tax bracket after retirement than the one they were in before retirement. Thus, theoretically, the money is taxed at a lower rate than it would have been, if the person paid the tax on it in the year in which it was earned;
  • Roth IRA: A person makes contributions of income for which they have already paid income tax in the year in which the money was earned. The money can then be invested and the earnings potentially grow tax-free, with tax-free withdrawals in retirement, provided certain conditions are met;
  • Rollover IRA: A person contributes money “rolled over” from a qualified retirement plan, e.g. an employer-sponsored 401(k), into this traditional IRA. The rollover transaction is not a taxable event. The money can be invested and gains are not taxed until the person withdraws the money and then must pay income tax on the amounts withdrawn in the year in which they are withdrawn. The person must withdraw at least a legally-mandated amount every year once they reach the age of 72, with certain exceptions.

Federal law places annual caps on how much a person can contribute to any IRA in a given year. Of course, a person can pursue these options outside of their place of employment, and there are other options as well.

For example, one popular vehicle for retirement investing is an annuity. An annuity is a kind of insurance contract that makes regular payments to a person either immediately after the annuity is purchased or at some point in the future, e.g. after retirement.

A person can invest in an annuity in much the same way that they invest in a 401(k) account. They can make regular periodic deposits to their annuity account. Meanwhile, the annuity offers either a fixed or variable rate of return. This is a safe way to grow and protect retirement savings, so that they provide a person with guaranteed income later in their life when they retire.
By investing in an annuity, a person can provide themselves with a pension.

There are many companies that have websites through which a person can invest directly in stocks, bonds, mutual funds, commodities and other investment assets. This is generally recommended for people who have the knowledge and experience to make informed choices, i.e. the ones that allow a person to profit from the investment and avoid losses. So personally investing in assets and markets may not be for everyone. It is, however, an option.

Of course, there are rules regarding all types of investments and when and how they become accessible for use by an investor and what the tax consequences of various moves are. It is a good idea to consult a qualified financial advisor to find the right investment vehicle for a person’s needs.

Legal Issues to Consider Regarding Retirement Investments

Along with retirement investments, come legal issues. Investment fraud scams are commonplace, and the elderly are often the targets of these criminal actors. These scams are often tied to other transactions, in particular, mortgage and home ownership transactions.

For individuals who are mentally incompetent, have a debilitating condition, or are unable to make sound financial decisions, a close family member may want to obtain a power of attorney in order to help the person manage their investments. Other legal issues to consider in regard to retirement investments include:

Another major issue is how to provide for the transfer of various assets at the end of the owner’s life. So, if a person has accumulated investment accounts and other assets for retirement, they then need to have an estate plan which provides for distribution of the assets when the person passes away..

What If I Have a Legal Claim Involving Pensions?

If a person is facing a legal issue involving their pension, they want to consult an attorney. Pension claims can be legally complex and time-consuming. For a claim involving a pension, consider taking the following steps:

  • Gather all pertinent documents related to the claim. For instance, contracts, pension statements received from an employer and records of payments are all documents that can help an attorney understand the situation;
  • Some disputes over pension plans are due to an administrative error. So a person wants to thoroughly review their plan and work to make sure they understand what has happened;
  • Be alert for any instance of fraud or misrepresentation.

Your attorney will be able to further advise you on your next steps in trying to resolve the issue. If any instance of fraud is involved, not only are civil claims possible, but criminal charges may follow.

If an employer has gone bankrupt or the pension fund has been depleted and cannot pay a pension as promised, a person should contact a pension plan dispute lawyer attorney for assistance.

Do I Need a Lawyer for Help with Pensions or Investments?

Pension and investment matters can be complex and technical. A wide variety of legal issues can come up, because each type of investment comes with numerous federal and state regulations and tax implications.

An experienced workers’ compensation lawyer will be able to assist you with any claim you may have involving your pension or other retirement plan with your employer. Your attorney will be able to build your case, and represent your best interests in negotiations and legal proceedings.

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