An integrated pension plan allows the employer to take into account the Social Security benefits when determining the recipient’s total benefit.
Congress first recognized integration in the Internal Revenue Code Section 401(a) by noting that a pension plan is not discriminatory merely because it excludes employees whose pay qualifies for Social Security benefits. By enacting the Employment Retirement Income Security Act (ERISA), Congress approved the existing provision by allowing integration based on three factors: the employer’s contribution to other benefit funds, whether the funds are meant to be used by the general public, and whether the benefits supplied correspond with the pension plans.
If a participant is receiving benefits under a pension plan, ERISA authorizes an integrated pension plan but it may not lower the participant’s benefits where there is an increase in one’s benefit level under the Social Security Act if the increase takes place after ERISA’s enactment date.
Reductions in pension benefits may be based on the estimated Social Security benefits. However, if the estimated amounts are not reasonably calculated, an employer may violate ERISA’s non-forfeiture provision. This way, the Act ensures that the employers truthfully inform their employees about integration and facilitates the bargaining process between the employers and the employees.
[Last updated in June of 2020 by the Wex Definitions Team]