Keep an Eye on Your Pension Plan, Oct 05


When I was coming of age, the wisdom was, “Get a goodjob with a major corporation, stay with it for 30 to 40 years, and, when youretire, you’ll have enough money to last you for the rest of your life.”

Corporations created pensions after World War II and during the Korean Warwhen the U.S. government adopted wage controls. To attract the highest quality,most skillful workers under such conditions, corporations devised pensionsas incentives.

The government soon lifted wage controls, but corporations continued withpensions. Some unforeseen circumstances in the last three to four decades haveended such plans at many old-line companies.

One reason is that market turbulence in recent years has eaten into the plans.In August, the Wyatt Watson consulting firm released a survey that showed only37 percent of large pensions are fully funded. That’s financial talkfor having enough money to cover estimated future obligations. It’s isa steep drop from 84 percent in 1998.

Ford, General Motors, Wachovia Bank, 3M, Coca-Cola, and IBM are just a fewof the companies that announced they will have to devote millions, even billions,to propping up their pension plans.

Some plans are in such bad shape that they have been taken over by the PensionBenefit Guaranty Corporation (PBGC), the government-sponsored insurance programthat assumes control of failed corporate defined-benefit plans.

The PBGC is the energizer bunny of safety nets. In 2002, it took control ofa record 144 pension plans, almost 50 percent more than 2001, putting the numberof plans being administered at more than 3,000. Last year, the PBGC had exhausteda $7.7 billion surplus and ended with a deficit of $3.6 billion.

If you work for a corporation with a pension plan, you might want to takea close look at your annual statement. Here are the items you will see there.

• Personal Information: When you joined the company and the plan, yourage, salary, etc.

• Your beneficiary: The person(s) who will receive the benefits fromyour pension plan when you die and what they will receive, otherwise knownas the survivors’ benefits. Update this if you marry or divorce or ifyour beneficiary dies.

• How much you have in the plan and how much it grew in the last year.I cannot overemphasize how important it is for you to keep track of this item.Your company may have a website or a telephone number that you can call whereyou can keep track of this information.

• The number of years you have been in the plan, otherwise known as yourcredited pension service. You must be a full member (or fully vested) to keepyour pension if you leave the company before you retire.

• How much you have earned so far (your retirement benefits). This isthe part of the report that shows what you and your company have contributedto a defined contribution plan. If you have a defined benefit plan, it alsotells you what pension you have earned under a plan formula so far. It alsoshows what government pension you have earned.

• The date you can retire early—both with a reduced pension andwith a full pension. It also tells you if your company is willing to top yourbenefits until your government pensions start. This is called “bridging.”

• What happens to your pension if you become disabled, i.e., your disabilitybenefits. In most plans, so long as you are disabled, you continue to earnyour pension until you retire. This is something you should check with yourhuman resources director.

• How well your company is funding your pension plan so it can pay allits members. This is important, because if your company ever discontinues itsplan or gets into financial trouble, your pension could be at risk.

Review your statement carefully to make sure it is accurate and that you understandwhat’s happening to your pension. You are also entitled to receive statementswhen you retire or leave the company. At your death, your survivors must receivea statement.

If you need to know more, you can request to see a copy of the actual planplus any changes that may have been made. However, be prepared to receive dozensof pages of legal jargon. If you have any questions, see your plan’sadministrator.

If you think you need to save more for retirement, see your friendly neighborhoodfinancial advisor.