Pension Planning

by Joy Lamberson-Klock

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 benefits of your pension are well-defined, there are several things you should do to get the most from your plan.

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

Most company pensions are based on an employee's years of service and salary level (usually calculated using the highest three to five 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 benefits owed to you according to the plan description and that your personal information is correct. Notify your benefits office of any mistakes or changes in your address or marital status, and keep each statement in your files.

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 benefits when calculating pension payments creating even more potential for error.

Choose benefits options based on your retirement goals. Your pension plan may offer you several benefit options, including:

?An early, traditional or late retirement date early retirement will probably sharply reduce your benefit, 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 fit, while monthly payments ensure 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 could jeopardize your spouse's financial security if you die first.

To learn how each option you're considering will affect your payout, ask your benefits office to run projections based on the variables. Also, a knowledgeable financial 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 ramifications 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 benefits office for a copy of Form 5500, which each company must file 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 Benefits Administration at 202-212-8776. If you find that yours is one of the few plans in trouble, you can take comfort in knowing that the federal Pension Benefit Guaranty Corporation (PBGC) will cover at least part of any obligation your company can't pay.

For underfunded single-employer plans that terminate in 1998, the PBGC will pay a maximum benefit of $2,880 per month, or $34,568 per year, with smaller payments for early retirees.

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

(Joy Lamberson-Klock, CFP, is a senior financial advisor with the advanced planner group of American Express Financial Advisors in Springfield.)

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Mistakes do happen, so make sure your company credits you with the work time and salary level you've achieved.[[In-content Ad]]