Monitor pension plan to ensure greatest beneÞts

by Richard Hale

for the Business Journal

If you're lucky enough to have one, a traditional pension can provide retirement income you can count on for life. But even though the beneÞts of your pension are well-deÞned, there are several things you should do to get the most from your plan.

Know the speciÞcs of your plan. If you haven't already done so, get a copy of your pension summary plan description from your company's beneÞts ofÞce. The description will tell how long you must be with your company before you're entitled to a pension and how your pension beneÞts accrue.

Most company pensions are based on an employee's years of service and salary level (usually calculated using the highest three to Þve years).

Knowing the details of your pension will help you work out other elements of your retirement plan including when you'll retire and how much you'll need to invest outside of your pension to meet your projected living expenses.

Review your periodic statements to ensure accuracy. Check each statement carefully to see that you receive full credit for pension beneÞts owed to you according to the plan description and that your personal information is correct.

Notify your beneÞts ofÞce of any mistakes or changes in your address or marital status, and keep each statement in your Þles.

You'll want to be even more vigilant when it's time for your company to calculate your actual pension payments. Mistakes do happen, so make sure your company credits you with the work time and salary level you've achieved.

Also, many companies take into consideration participants' Social Security beneÞts when calculating pension payments creating even more potential for error.

Choose beneÞts options based on your retirement goals. Your pension plan may offer you several beneÞt options, which could include:

?An early, traditional or late retirement date. Early retirement will probably sharply reduce your beneÞt, while working a few years beyond the norm may drastically increase your payout.

?A single lump-sum payout at retirement or monthly payments for life. A lump sum allows you to manage your money as you see Þt, while monthly payments assure you a set, regular income.

?If you choose monthly payments the option of payments for your lifetime only or smaller payments over both your and your spouse's lifetimes choosing the higher payments for your lifetime only could jeopardize your spouse's Þnancial security if you die Þrst.

To learn how each option you're considering will affect your payout, ask your beneÞts ofÞce to run projections based on the variables.

Also, a knowledgeable Þnancial adviser can be a valuable resource in helping you choose pension options based on your goals. Your accountant and attorney may also help you assess the tax and estate planning ramiÞcations of each pension option.

Stay informed about your pension's safety. Only a small percentage of U.S. companies default on their pension plans each year. But if your plan is one of those in poor shape, you'll want to know about it.

Federal law requires that companies whose plans hold less than 90 percent of necessary funding must notify participants of the situation.

Want to be more proactive in learning about your plan's condition? Ask your beneÞts ofÞce for a copy of form 5500, which each company must Þle with the U.S. Department of Labor annually and includes an independent actuary's opinion of the plan. For further information about your pension rights, call the Labor Department's Pension and Welfare BeneÞts Administration (PWBA) at 202-212-8776.

If you Þnd that yours is one of the few plans in trouble, you can take comfort in knowing that the Federal Pension BeneÞt Guaranty Corporation will cover at least part of any obligation your company can't pay.

For underfunded single-employer plans that terminate in 1998, the guaranty

corporation will pay a maximum bene-

Þt of $2,880 per month, or $34,568 per year, with smaller payments for early retirees.

For more information about guaranty corporation pension insurance, call the agency at 202-326-4000.

(Richard A. Hale, CFP, is a Þnancial advisor with American Express Financial Advisors Inc.)

[[In-content Ad]]