Retirement Benefits: Avoiding Unpleasant Surprises

by Tonya M. Blake

Preparation is the key when it comes to retirement planning. Traditional pension plans--plans in which the employer saves money and promises to pay retirees a fixed benefit upon retirement--are becoming extinct. On the upsurge are 401(k)s and other retirement plans, which require employees to save and be responsible for their own retirement benefits. As such, you should carefully and thoroughly review the details of your retirement plan before you sign your retirement papers. Below are a few questions which will assist you in reviewing your plan:

1. What type of retirement plan do you have?

As stated earlier, in a traditional pension plan (also known as a defined-benefit plan), an employer saves money and promises to pay retirees a fixed benefit upon retirement. Under defined contribution plans, retirement benefits are not promised. A retirement account is opened for each employee.

The employee, the employer or both make contributions to the account and selects the investments that will go into the account, which may include stocks, bonds and mutual funds. Your employer may offer, and you may be participating in, more than one retirement plan. Make sure your employer has your correct date of birth, date of hire, date of termination or retirement, and salary. Hourly workers should make sure their employers have the correct number of hours worked each year. Also, be sure to ask your employer for a detailed benefits statement every two to three years. This statement should explain how your benefits are calculated. Your employer should also provide you with a summary plan description, which is a summary of the particulars of the plan. Request it, read it, and hold on to it, and any other statements your employer gives to you concerning your benefits.

2. Are my pension benefits insured?

The Pension Benefit Guaranty Corporation (PBGC), a federal insurance agency, insures pension benefits in most defined benefit plans. Defined contribution plans and plans set up by professional service firms such as those of doctors, lawyers and church groups are usually not insured. Federal, state and local governments plans are also usually not insured. If your plan is insured by the PBGC, it will guarantee your pension up to a certain limit. Ask your employer if your retirement benefits are insured by the PBGC.

3. How long do I have to work before I receive a benefit?

Generally, an employer can require that you complete 5 to 7 years of service before you are completely vested in any retirement contributions the employer makes on your behalf. To be vested means you have a lawful right to contributions your employer makes to your retirement plan. Any contributions that you make to your retirement plan are immediately vested. This, however, does not mean that you can withdraw your retirement savings at any time and for any purpose. The Internal Revenue Service (IRS) has a few rules and regulations about withdrawing retirement savings before retirement. Talk to your employer and examine the all rules and regulations carefully if you need to withdraw money from your plan before you retire.

4. Is my spouse or loved one entitled to my retirement benefit if I die?

When you retire, you will probably receive your retirement benefit as either a life annuity or a joint and survivor annuity. Under a life annuity, you receive a monthly benefit for life and benefits cease after your death. Under a joint and survivor annuity plan, you will also receive a monthly benefit for life and your spouse (or another designated beneficiary if the plan allows for one) will receive a percentage of your benefit after you die. If you elect the joint and survivor annuity plan, you will likely receive a reduced benefit during your lifetime so that money is available to your spouse or beneficiary after your death. Ask your employer which options are available to you.

5. What else should I do?

Remember to keep your employer informed of any life changes that may affect your benefits. Changes in marital status, beneficiary changes, and the like may affect your benefit payments.

6. What should I do now?

Do not wait until the day you retire to find out about the details of your retirement plan! Contact your employer or whoever is in charge of answering your pension plan questions and get the answers you need today!

Tonya M. Blake is a writer and consultant with Doulos Publishing Co., a division of The Human Resources Consulting firm, Quince Moore and Associates, Inc. in Southfield, Mich.

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