By David Brandolph
In this, the second part of our April financial literacy month series, we answer two more of the top five questions that the Pension Rights Center commonly gets from people about their retirement benefits (Part I can be found here). Unless stated otherwise, answers relate to company or union sponsored private-sector retirement plans. Being financially literate about your retirement plan can pay off for your future.
Companies often move, change their addresses, and are bought and sold. They also go bankrupt and end or combine their pension plans. When this happens, it may be difficult for former workers to locate the company or their retirement plan to get information about their pension or 401(k) benefits. But it may be possible to track down the plans.
There’s good news for people with retirement plans that terminated (often because their former employers went bankrupt). They can seek help from the federal Pension Benefit Guaranty Corporation (PBGC)’s Missing Participants Program. While the program’s list includes missing participants from terminated defined benefit pension plans who are entitled to benefits, it does not include all such missing participants from 401(k)s and other individual account plans.
If your former company still exists but was bought or sold, changed its name, or moved, you will need to dust-off your detective hat and trench coat. You should begin your sleuthing by contacting anyone you think might know what happened to the company, such as friends, relatives, co-workers, union officials and former supervisors. An internet search could turn up new contact information for the company or articles discussing news about the company’s move, merger, name change, etc, You can also review state incorporation records or company filings with the Securities and Exchange Commission (SEC).
Another strategy you can use to find your employer’s latest address and contact information is to search the U.S. Department of Labor’s (DOL) lists of employer “Form 5500” financial reports and at www.freeerisa.com (free registration required). Try both searches for the most recent information.
If you live or worked in one of the 30 states covered by the U.S. Administration for Community Living’s Pension Counseling and Information Program, you may be able to find help from one of the six regional pension counseling projects that we work with. One of those projects recently published an informative blog post on how they tracked down a lost pension plan.
Benefits Advisors at the DOL can also help track down lost plans.
Legislation has been introduced into Congress to create a retirement plan registry for all Americans with a company or union retirement plan. The new Office of Lost and Found would be located at the PBGC. It would collect information about changes in company and retirement plan names, addresses and structures so that, in the future, individuals will be able to locate their plans and benefits when it’s their time to retire.
For now, people looking for resources to help them find a lost retirement plan may want to read this booklet or contact a pension counseling project or DOL Benefits Advisor. You can also reach out to the Pension Rights Center.
Most experts advise against taking a lump sum unless a plan participant has a serious illness or other special circumstances. Also, some special early retirement benefits can be lost by taking a lump sum. But individual situations differ.
It may be very tempting to take a large lump sum payment if offered by an employer instead of a much smaller seeming lifetime monthly payment. But you should think carefully before accepting the offer.
The purpose of a pension is to provide lifetime retirement income. It does this by offering an annuity that can be counted on to continue as long as you are alive.
Unlike pension annuities, lump-sum payments don’t ensure lifetime retirement income. Such payments are calculated to be equivalent to annuity payments for the expected lifetime of retirees. If retirees live beyond their life expectancy, the annuity is the better deal. This is especially true for women, given that plans are required to calculate lump sum payments without accounting for the fact that women have longer life expectancies than men. The annuity protects retirees from outliving their resources. For married retirees, this insurance typically extends beyond the plan participant’s life in the form of monthly annuity payments for the lifetime of their surviving spouse.
As previously mentioned, these annuity payments continue for your lifetime, no matter what happens in the often volatile investment markets. Even better, the plan and its consultants bear all the risk of providing those payments, while retirees who choose annuities can concentrate on living their lives and doing what matters most to them.
Pension payments are also insured by the federal Pension Benefit Guaranty Corporation up to certain limits (see our fact sheet), and, if the plan sells the annuity obligations to an insurer, the payments are protected up to the limits established by the State Guaranty Association in the retiree’s state.
There are circumstances, however, where it may make sense for retirees to take the lump-sum payment. These include people with serious illnesses who have relatively short life expectancies, and either are unmarried or have spouses who also have short life expectancies. Those who have ample guaranteed income for life from other sources may also be candidates for taking the lump-sum.
Those who are confident in their investment knowledge and skills may decide to take the cash, but not only do they bear the risk of investing these funds, they also must ensure that this pot of money continues to pay income throughout their lifetime. They must also ensure that their spouse is capable and willing to take on these responsibilities if they die.
For additional information, please see our fact sheet that provides information about the pros and cons of taking lump sums.