The term "qualified retirement plan" applies to plans covered by the Employee Retirement Income Security Act, or ERISA. The law does not cover public sector pensions, however, including federal government plans such as the military retirement system. Military pensions are therefore considered nonqualified plans.
To be considered a qualified plan, a retirement plan must meet a number of requirements under ERISA, including a vesting schedule, nonforfeitable rights to qualified employees, a fiduciary responsibility on the part of pension sponsors, nondiscrimination requirements and many others.
Because ERISA only covers private sector retirement plans, public sector plans are exempt and are therefore nonqualified plans.The military pension system is one of these, as are state and local pensions and Section 457 deferred compensation plans.
Application to the Military Retirement System
The military is a public sector retirement plan. It does not offer a vesting schedule for early retirees, though the military may occasionally announce an "early out" program to limit its pension responsibilities. There is no requirement for membership in the Pension Benefit Guaranty Corp., which acts as an insurance backstop for failed pension plans. Military pensions are therefore considered nonqualified retirement plans.
- Making a financial plan image by Allen Stoner from Fotolia.com