Pension Rights - 12/03/08

INTRO: Over the years, we’ve talked about the best time to start taking your Social Security benefits.  And I’ve explained why, for many folks, starting your benefits as early as possible makes the most sense.

Does the same rule of thumb apply to private pension benefits?  Are you better off taking your benefits promptly upon retirement, or should you wait? 

1. SHOULD WE START TAKING OUR PENSION PROMPTLY, OR DELAY?

A. That depends a lot on the terms of the pension plan and on your personal circumstances.  If you can take a lump sum and roll it into an IRA of your own, that’s often the best approach.  That way, you can control the investments using almost any stocks, bonds, CDs, mutual funds or other investments you choose.  And if the company later goes bankrupt, you’ve got your money.

2. WHAT IF YOUR ONLY OPTION IS TO TAKE MONTHLY PAYMENTS, OR YOU CHOOSE TO TAKE A MONTHLY ANNUITY?

A. Check the plan to find how much your benefits will increase by delaying your start date.  Most experts will tell you that, if you don’t need the money, for example, if you’re working some place else, you’ll be better off waiting to take your pension and letting it grow.

3. IF A PERSON DELAYS TAKING HIS PENSION, AND THE COMPANY GOES BANKRUPT, WILL THE PENSION BE LOST?

A. Not necessarily.  The first question is whether your pension plan is adequately funded.  You can check that with the administrator of the plan.  If the plan is fully funded, then your benefits should be paid in full even if the company goes bankrupt.  Unfortunately, many company pension plans are underfunded these days and the government hasn’t forced these companies to come into compliance with the law.

If a company plan is underfunded and goes to bankruptcy, then it’s likely that the Federal Pension Benefit Guarantee Corporation will take over.  The PBGC guarantees retirees that their pension will be paid, up to certain limits.  For example, this year the PBGC won’t pay more than$51,750 for a 65 year old, even if the promised pension was much higher.  And some pension enhancements will not be covered by the PBGC.

4. IF WE THINK THE COMPANY MAY GO BANKRUPT, ARE WE BETTER OFF TAKING THE PENSION EARLIER?

A. In some cases, the answer is yes.  One important situation is when the plan doesn’t have enough funds to pay all benefits in full, but has some funds to pay benefits beyond the PBGC guarantee amount.  In these cases, the additional money in the plan often will go to retirees who have been collecting their pension payments for 5 years or more.

5. WHERE CAN WE GET MORE INFORMATION?

A. The Pension Rights Center is a great resource: www.pensionrights.org.  The website has helpful information, such as information on figuring whether your company pension plan is underfunded.

CLOSE: With the economy in a nose dive, you must take extra care to ensure the decisions you make concerning your pension plan are best for you.  For more information, try the Pension Rights Center, www.pensionrights.org.