Protect Your Pension
by Rick Rodgers
The Pension Protection Act of 2006 (PPA) just turned five years old. As companies rush to shore up pension or cancel underfunded plans you need
to protect yourself from common pension mistakes. PPA was
designed to close loopholes in the pension system and addresses problems for
the roughly 34 million Americans covered by traditional pensions known as
PPA requires pensions be fully funded by 2015. It also prevents companies
with big pension deficits to skip annual contributions and still pronounce
their plans healthy. Another major goal of the bill was to shore up the
health of the Pension Benefit Guarantee Corporation (PBGC). PBGC is an
agency of the US government that insures private pension plans. 147
pension plans failed in 2010 which increased the PBGC deficit to $23
billion. The agency assumes terminated plans and pays benefits to retirees
up to a maximum of $54,000 if they retire at age 65 or later.
One problem not addressed by PPA but continues to affect millions of
people of all ages, not just retirees are pension miscalculations.
Anytime you change jobs or take a lump-sum pension cash-out, you are at
risk. Women are especially vulnerable to pension mistakes because they tend
to move in and out of the workforce more often than men. For the most part,
pension mix-ups aren’t intentional.
How would you know if there was an error which had been compounding for
many years? How can you ensure that you’ll get what’s rightfully yours when
retirement arrives? It’s up to you to keep track of your own pension. Know
your rights and monitor your retirement plan before the “golden years” creep
up on you.
Educate yourself about how your plan works. Contact your company benefits
officer and ask for a copy of the plan, not the summary plan description.
In May, the US Supreme Court ruled that you can’t depend on your employer’s
summary plan description. The summary is an abbreviated form of the
plan. The Court held that if there are discrepancies, the plan is the
controlling document. You need a copy of the plan to determine how
your pension is calculated. The plan document can run 50 pages or
More and more companies are freezing or terminating their pension plans.
Only 38% of Fortune 1000 companies offered a pension plan in 2010.
That number is down from 59% in 2004. Of those companies with a plan,
35% of those were frozen and 2% were in the process of terminating the plan.
You should immediately request a personal statement of benefits if this
happens to your pension. The statement will tell you what your
benefits are currently worth and how many years you’ve been in the plan. It
may even include a projection of your monthly check.
Most of the time companies won’t intentionally fudge; sometimes the blame
can be on simple errors. Here are seven common pension mistakes to watch
- Company forgot to include commission,
overtime pay, or bonuses in determining your benefit level.
- Your employer relied on incorrect Social
Security information to calculate your benefits.
- Somebody used the wrong benefit formula
(i.e., an incorrect interest rate was plugged into the equation).
- Calculations are wrong because you’ve
worked past age 65.
- You didn’t update your workplace
personnel officer about important changes that would affect your benefits
such as marriage, divorce, or death of a spouse.
- The company neglected to include your
total years of service.
- Your pension provider made a
How do you protect yourself? Create a “pension file” to store all
your documents from your employer. Also keep records of dates when you
worked and your salary, since this type of data is used by your employer to
calculate the value of your pension. Ask for professional help, if you still
think something might be wrong. The
American Academy of
Actuaries Pension Assistance List program offers up to four hours of
free help from a volunteer. The federal administration on
Aging’s Pension Counseling and Information Program may also be helpful.
About Rick Rodgers
Rick Rodgers, Certified Financial Planner, Chartered Retirement Planner
Counselor, Certified Retirement Counselor, and member of the National
Association of Personal Financial Advisers, is Founder and CEO of Rodgers &
Associates. Rick’s expertise in the investment and financial advisory
profession began with one of the big Wall Street firms in 1984. Twelve years
later, he founded Rodgers & Associates as a way to concentrate on financial
planning. His vision was to help families prepare for a worry-free
retirement through the creation and conservation of their wealth. Today, as
a leading retirement expert and personal wealth adviser to high net worth
individuals, Rick provides integrated financial, tax, and investment
strategies, retirement planning, executive compensation, estate and
charitable planning. He is also author of the book The New Three-Legged
Stool: A Tax Efficient Approach To Retirement Planning (www.TheNewThreeLeggedStool.com)