Are you relying on a traditional pension plan to see you through your retirement? If so, you’d be wise to keep an eye on your company’s pension plan.
Traditional pensions, or defined-benefit plans, promise retirees a certain amount of money when they retire. The benefit usually is based on categories such as years of service and salary.
Today most employers pension plans have changed to defined-contribution plans where the amount an employee receives at retirement is based on employee and employer contributions and the returns earned by the investments.
However, there are a large number of Bahamian workers, especially those employed in the hotel industry, who are counting on the traditional, employer-paid pensions.
So the question that all persons covered by these type plans should consider is “Whether your plan is being properly funded?”
Usually, a pension plan is considered under-funded if its assets are less than 90 per cent of its current liabilities. Under-funded doesn’t necessarily mean that a pension plan is in trouble. Most companies may have enough assets to pay retirees’ current benefits. But lousy returns and low interest rates on fixed income have greatly affected the returns on most pension investments.
Is your pension threatened? If your company is financially healthy, it should be able to make up the shortfall by making lump sum payments but if your company is struggling, your full pension could be threatened.
The fact that there is a financial problem at a corporation doesn’t always equate into a problem with the defined-benefit plan. But you have to be a lot more educated and informed than in the past. We didn’t think about retirement plans because we knew our employers were making contributions on our behalf and that’s all that mattered. Now it’s incumbent upon all of us to monitor our plans.
In The Bahamas there is no insurance on pension plans or government agency charged with making sure employees who work for a company that goes out of business or can no longer support the pension plan get at least a minimum benefits. Therefore the guarantee of your pension is only as good as the guarantee of your company.
Individuals have virtually no say in the structure of a defined-benefit plan, which is why it’s always smart to have a separate savings plan and participate in an individual retirement saving plan.
But there are things you can do to make sure you’re not the last to know that your pension maybe in jeopardy.
To stay informed you should request a copy of the summary of your pension plan when you become a participant. The summary plan description will tell you when you begin to participate in the plan, when your benefits become vested, how service and benefits are calculated, when you will begin to receive payments and how to file for benefits.
Each year, you should also request your individual benefit statement. It tells what benefits you have accrued and vested. Some companies make employees ask for these pieces of information. Others are very good at keeping employees informed.
In addition, carefully read any and all pension notices you may receive, either by mail or at work. Don’t be afraid to ask questions of your plan administrator, especially if there is reason to be concerned about developments at work. Perhaps your company is merging or being acquired and you’re not sure what would happen to your pension. You have the right to go to the administrator and ask about the plan.
If you have a financial adviser, make sure he or she reviews your pension plan and gives youguidance.
By Glenn Ferguson
Glenn Ferguson is a public speaker and trainer providing the “help you need to enjoy the life you want.”
