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Pension Plans FAQs

Pension Plans FAQs

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  • What is a pension?

    A pension is a retirement plan that provides you with a fixed payout when you retire. Most plans calculate your benefit based on a formula that includes factors such as salary and years of service. Your employer maintains the plan for you. When you retire, you choose between a lump-sum payout, or a monthly benefit payout.

  • Who contributes to my pension?

    Your employer makes all the contributions to your plan. You do not contribute money to your pension.

  • Am I responsible for managing my pension?

    No. Your employer is responsible for the plan investment strategy and funds management. Most employers hire outside firms to develop the strategy and manage the funds. Employees are not required (or allowed) to manage pension funds.

  • Do I need to make investment decisions regarding my pension fund?

    No. Your employer is responsible for the plan investment strategy and funds management. Most employers hire outside firms to develop the strategy and manage the funds. Employees are not required (or allowed) to manage pension funds.

  • What does vested mean?

    Vested means you have earned a nonforfeitable right to the pension funds set aside for you by your employer. Generally, there are two vesting schedules. On the 5-year schedule, employees are 100% vested after 5 years of service under a plan. On the six-year graduated schedule, employees become 20% vested after 2 years and vest at a rate of 20% each year thereafter until they are 100% vested after 6 years of service. Some plans utilize a faster vesting schedule.

    Note: A plan may require a person be age 21 and be employed with their company for a certain period before they are eligible to begin participating in the plan.

  • When do I receive my pension funds?

    You may not access your pension funds until you retire, generally at age 65. Some plans allow employees to collect early retirement benefits. If you collect early benefits, the size of your monthly payout will be less than it would have been if you waited. Under certain conditions, former employees may receive a one-time, lump sum benefit. Your benefits administrator can illustrate how your payments may vary depending on when you start receiving benefits.

  • Can I withdraw funds or borrow money from my pension before I retire?

    If you leave your employer before you retire, you are entitled to any funds set aside for you in which you are vested. Generally, the earlier you leave the lower your payout will be.

    Unlike 401(k)/403(b) plans, pensions are not portable―you may not roll funds over from your pension to the pension of your new employer or from your pension to an IRA (until you retire).

  • What if I leave my company before I retire?

    If you leave your employer before you retire, you are entitled to any funds set aside for you in which you are vested. Generally, the earlier you leave the lower your payout will be.

    Unlike 401(k)/403(b) plans, pensions are not portable―you may not roll funds over from your pension to the pension of your new employer or from your pension to an IRA (until you retire).

  • What is the difference between a lump sum payout and monthly payouts?

    A monthly payout is also known as a "life annuity." Through equal monthly payments, it supplies a steady income. Most people tend to choose this payout method. Having a regular income can be less stressful than taking responsibility for a big lump sum, especially for inexperienced investors.

    A lump sum payout provides you with the entire balance of your pension at one time. When you take a lump sum, you assume responsibility for how the money will be managed and how much you can spend over time. Experienced investor may be happier with a lump sum which can be invested and potentially grow in value.

  • How can I estimate my monthly benefit at retirement?

    If your employer has elected to offer an Estimated Benefit Link, you can determine your monthly benefit if you terminated employment today or at retirement (Age 65), by logging on to PlanTrac, and clicking the Projected Estimated Benefit link in the Pension Information section. To estimate your monthly payout for termination and retirement at various dates in the future, click the Estimate link. Here you can enter your expected retirement age and anticipated salary at retirement to calculate a monthly payout.

  • If I work in the public sector, can I have a pension and collect Social Security?

    A percentage of public-sector employees in 12 states may not be eligible for Social Security if they have a public-sector pension. Check with your benefits administrator about the rules in your state.

  • How do I change the beneficiary information for my plan?

    Be sure to designate a beneficiary for your plan and review this information on a regular basis. Your beneficiary receives your payout in the event of your death. To designate or make changes to your beneficiary information, contact your benefits administrator. If you are married, you will need spousal consent to designate a beneficiary other than your spouse.

  • How can I change my address?

    To change your contact information, contact your benefits administrator.