What Does it Mean to Be Covered by a Retirement Plan at Work?

There’s more than one way to save for retirement. Saving through a retirement plan offered by an employer is one popular way that many people use. However, contributing to a work retirement plan or even being eligible to contribute to one may affect contributions you can make to an individual retirement plan. If your employer offers a retirement plan, it’s important to understand not only the benefits but the criteria to be eligible to participate in the program.

Types Of Retirement Plans

Your employer will usually offer one of two types of retirement plans to employees. These are defined-benefit plans and defined-contribution plans. A defined-benefit plan is funded by the employer and promises the employee a specific benefit each month after retirement. You can generally recognize this type of plan because you can calculate the benefit using a formula. The defined-contribution plan allows you to contribute a set amount to a retirement plan and receive whatever benefit the account is worth upon retirement.

Who Is Covered

Your employer is allowed to include different employee groups in retirement plan coverage. One example of this is most employer retirement plans only allow full-time workers to participate in the employer plan. One element of being covered or eligible for the employer retirement plan is to be in an eligible employee group.

When Can You Participate

Time is another criteria that must be met in order to be covered by an employer retirement plan. Federal law sets minimum criteria, but the employer can always make the waiting period shorter. According to the U.S. Department of Labor, the general waiting period is a year. After that time, if you are in one of the covered employee groups, you are covered by an employer retirement plan.


Just because you are covered by an employer retirement plan, it doesn’t mean you are required to participate. It simply means that you are eligible to participate in the retirement plan. Being covered in a defined-benefit plan also means that you begin to accrue benefits in your account. However, being covered by an employer retirement plan may limit contributions you can make to other personal retirement plans in certain cases.