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General Business News for April 2002
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Is Your Pension Distribution Correct? How Do You Know?
A pension distribution, whether from retiring or lump sum payment when changing jobs, may be the largest cash distribution you ever receive. It is very important to make sure this figure is accurate. In 1997 Senate hearings determined that benefits had been underpaid for at least 13% of all pension recipients. This translates to an error of one in eight pensions. Since 1997 the amount of pension recipients has risen dramatically so the percentage of errors is most likely higher today. Most people accept the math on their benefit calculations without question.
Follow these guidelines to reduce errors:
If your plan is converted from a traditional to a cash-balance plan it is important that you receive the details of the new plan. The main difference between these plans is in the way that cash accumulates. In a cash balance plan, cash accumulates steadily for each employee. In a traditional, defined benefit plan, your last five or ten years are more heavily weighted toward your benefit amount. So, if you are a longtime employee and your company wants to convert to a cash balance plan, then negotiate with the company to have provisions of the old plan grandfathered so you don’t lose those benefits. During this time of mergers and acquisitions, new lower benefit pension plans could replace old plans. An acquiring company must give 60 to 90 days’ notice that it will terminate the old plan or it must adopt the old plan provisions. If the old plan is terminated, all participants are assumed 100% vested and eligible for their total accrued benefits. It is your responsibility to make sure all your records are up to date and that you understand what provisions have changed in your plan. It is a good idea to request a written statement after any changes to review for correctness. If you find an error notify the administrator in writing. If you don’t get a response, follow up with another letter in writing and continue until you get the error corrected. It is imperative to keep all your records and document every communication in writing. If you still have any questions (and your probably will), give us a call. Chances are good that we can help. |
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