A portability agreement is a legal document that outlines the terms and conditions under which an employee can transfer their retirement savings or pension plan from one employer to another. It is also known as a pension transfer or portability option.
In simple terms, a portability agreement allows an employee who leaves their job to transfer their pension or retirement savings to a new employer or an individual retirement account (IRA). This helps employees to continue building their retirement savings, even if they switch jobs or professions.
The purpose of a portability agreement is to provide flexibility and independence to employees. With the help of a portability agreement, employees can take control of their retirement savings and plan their financial future in a more efficient and effective way.
Under a portability agreement, employees have the option to roll over their retirement savings or pension plan into a new employer`s 401(k) plan or IRA. This can help them avoid penalties and taxes that would be imposed if they received a lump sum payment of their retirement savings.
The terms and conditions of a portability agreement can vary depending on the employer and the type of plan. Some plans may impose restrictions on how much or how often employees can transfer their retirement savings, while others may offer more flexibility.
It is important to note that a portability agreement is not the same as a vesting agreement. Vesting agreements determine how much of an employee`s retirement savings or pension plan they are entitled to if they leave their job before they are fully vested.
In conclusion, a portability agreement is a valuable tool that provides employees with more control and flexibility over their retirement savings. By understanding the terms and conditions of a portability agreement, employees can make more informed decisions about their financial future.