Your Benefits: Pension and Social Security

Finding and keeping a job are important but knowing how to support yourself beyond your work years is equally important. This is why it is crucial that you understand your retirement benefits and social security rules.

The laws under ERISA (Employee Retirement Income Security Act of 1974) protect pension participants and their money by requiring companies that offer pensions to meet disclosure, funding and administrative standards.

There are two basic types of employer-sponsored pension plans to which these rules apply:

  1. Defined-contribution plans, in which the company – and possibly the employee – contribute a specified amount each year to the fund. When you retire, you get the money in a lump sum or via an annuity. But the amount you’ll get isn’t guaranteed, and it will increase only as much as the plan’s investments do. These plans include 401(k) and 403(b) plans, deferred profit-sharing and stock/ bonus plans.
  2. Defined-benefit plans, which use a formula that usually factors in your years of service and salary to determine the amount of your pension.

By law your employer is legally obligated to be certain there is enough cash on hand to pay your benefits when you retire. If your company can’t pay, the government will; defined?benefit plans are insured by the federal Pension Benefit Guaranty Corp. Defined-contribution plans do not have this feature, so in lieu of that protection, the law requires employers to give you three distinctly different choices for your 401(k) investments and let you have more say in where your retirement money is allocated.

Becoming a Member of a Pension Plan
Federal law generally, and at a minimum, requires that if you’re 21 or older you can become a member of your employer’s plan and begin the process of vesting in it after one year of employment. Vesting is the process by which you build up the right to your pension benefits over time.

If you leave the company before being fully vested, you own any money you may have contributed to the plan, plus whatever it has earned. But you don’t completely own the accrued benefit created by the employer’s contributions until you’re 100% vested. If you leave the company when you’re only, say, 20% vested in the plan, then you get to take only 20% of the accrued benefit. Check your company’s vesting schedule to see how much you’re entitled to.

Companies can use one of two schedules for vesting:

  1. vesting of 100% after five years of service (cliff vesting), or
  2. gradual vesting that starts at 20% after three years of service and adds 20% for each of the next four years so that vesting is complete after seven years of employment with the company.

A multi-employer plan can use a ten-year cliff vesting schedule. Whatever kind of plan you have, it must provide for full vesting at the plan’s normal retirement age no matter how many years you’ve put in, or if the plan is shut down.

Each plan lays down rules defining your pension status when you have a break in service, that is: if you are unemployed for a period of fewer than 500 hours with the company due to a layoff or extended leave, or if you fail to work a full year, which ERISA defines as 1,000 hours of service.

ERISA protects employees who might miss extended periods because of pregnancy, birth or adoption of a child, or because of the need to care for a child following birth or adoption. In such cases, up to 501 hours of the leave must be counted as service if failing to count them would create a break in service.

Your company’s plan will define any disability benefit to which you’re entitled, possibly a retirement pension if you become disabled after a certain number of years of service.

One thing that all defined-benefit plans have in common: Your spouse will be the automatic beneficiary of your pension via a joint?and?survivor annuity unless you and your spouse choose some other form of payout and mutually sign this right away. This is an important safeguard for spouses, guaranteeing pension payments over your lifetime and a reduced level of payments for the life of your surviving spouse or other beneficiary. But remember that choosing this option will reduce your monthly benefit to offset the plan’s cost of continuing benefits for your survivor.

Most states consider a retirement plan part of marital property, and therefore in play as part of the divorce settlement. So even though you’re the one who earned the pension, your spouse may end up with part of it.

Most plans have designed benefits for so?called normal retirement at age 65. Because you can’t be forced to retire at that age, your plan must recognize service beyond that age by including the additional years of service when it computes your pension benefit.

To find out about your pension plan, read the summary description that must be provided by your company, as well as the plan’s annual report. It will tell you how the plan works, what your rights are, and so on.

If you have questions regarding your pension rights, you may want to consult with your company’s human resources or pension officer, or your labor union.

Or contact the nonprofit Pensions Rights Center in Washington, D.C., at 202-296-3779. It offers publications on, among other things, how to tell if the people investing your pension are following federal rules, as well as fact sheets summarizing the rights of divorced spouses.

If you still aren’t getting what you need from your company’s pension administrator, consult an attorney who specializes in pension law

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