There’s a lot of confusing terminology and acronyms the financial services industry likes to toss around, like IRA, ETF, portfolio diversification, REIT, etc. If some of these make your head spin, you’re not alone.
As Ubiquity Retirement + Savings CEO, Chad Parks likes to say, “I had to get a master’s degree to understand the basics of personal finance!”
We’re here to simplify and to talk to you, not at you. That’s why we created the Jargon Translator, an ongoing series that will take the fear out of financial and retirement terminology we see too often.
The first step is to participate in a retirement savings plan. That’s why the initial installment will focus on how to know when you’re eligible to participate in an employer-sponsored retirement plan.
Ready to learn more about getting started saving for retirement? Here are some terms to familiarize yourself with before meeting with your HR representative or plan provider.
1. Year of service
It’s important to be aware that eligibility varies by company. The majority of employers offer plans with immediate eligibility, which means the employee may enroll and participate in the plan once they are hired.
However, not all employees can enroll in a plan right after starting at a new job. Some are subject to the year of service rule, which can be confusing. “Year of service” doesn’t mean an employee must have worked at a place for 12 months before becoming eligible to enroll in a plan. What “year of service” means is that the employee must have completed 1,000 hours of work at his or her job within a year.
What’s the purpose of this rule? It is designed so that only full-time employees are eligible for this benefit, as part-time employees are typically not able to complete 1,000 hours of work during the course of a year.
2. Entry dates
Let’s say you’re eligible to enroll in a plan. Perhaps your employer offers immediate eligibility upon starting, or you’re at a place that has the year of service rule, and you met that requirement. There’s still something else to factor in before starting to sock away money for your retirement.
Retirement plans are designed differently at each company, and the company ultimately decides when new participants can start utilizing their plans.
For example, some company plans have entry dates on the first of every month, quarter, year or even twice a year (Jan. 1 or July 1).
Be sure to clarify your entry date with your employer so you’re clear on when you can kick start those savings efforts!