Understand Your DB, Keep Documents, Read Statements

[brett]

I retired from Megacorp several years ago. I am just in the process of finalizing my DB pension. The company that I started with was bought out twice. My original DB plan was kept alive and I was grandfathered-though there are not many remaining members. It is well funded. Admin was outsourced to one of the biggies who do this.

I finally signed-after eighteen months and FIVE different pension estimates. The final number is about 40 percent higher than the first quote. I started the process early as I anticipated an issue.

Why did this occur? No one was trying to cheat me...it was lack of information, lack of a solid understanding of the plan, etc. etc. I was fortunate, I kept a critical document from 1996, all HR pension memos, and every annual pension statement. My issues concerned the penalty for taking early pension and more importantly the ability to include bonus money in pensionable income(I had some large performance bonuses in my last six years). I also read, and re-read the pension document and the subsequent amendments to the plan. This knowledge allowed me to keep asking questions, challenging numbers, etc. until I got to the number that I felt was correct-based upon the data that I had. The increase in commuted value from version one to version five was slightly under $400K.

I am not a brain surgeon. But my learnings from this are understand the details of your plan, keep every memo and document, and do not accept a number that you cannot reconcile just because it came from the 'pension department'-internal or outsourced, and do not be hesitant to challenge the number.

Prior to this, I did an audit about eight years ago and found out that the company was not matching my voluntary contributions to this hybrid DB plan. It was an accounting error over six years @ $1500. per year. That added $9K to my fund for buying top ups etc.

I sometimes wonder how many people just take the number they are given without completing any due diligence.

[gbstack]

I’m in the same boat with my DB. The plan has changed 3 or 4 times in the last 30 years and it's really hard to find someone to answer any questions. I’m also trying to get additional time that they claimed as contractor time but I believe I should have been classified as an employee.
I think you really have to do the research like you did to get the full benefit.

[brett]

Yes, but it is essential to keep the documents. I was fortunate...a tax audit in 2006 forced me to sort through boxes of my documents.

Fortunately I found the pension data. The 1996 information provided me with details on what constituted pensionable earnings. I also found the 1997 statement that outlined my revised pension credits-the plan was changed and my 10 year service was recalculated to 14 years based upon some formula at that time. These two documents formed the bulk of the increase in my commuted pension value. I am a bit of a packrat when it comes to documents. The trick for me is finding them. Now I file neatly!

[Texas Proud]

Mine was converted from a DB to a cash account... when it happened, there were a lot of long term people who complained that their balance did not come close to the amount needed to fund their pension they already had earned.... (btw, they lost their court case)....

For me, I was only in one year, so not a big deal....

It was easy to figure out the correct amount.... salary X % based on years worked = deposit amt.... the interest rate was set late in the prior year.... so another quick calculation....

[brett]

Yes, DB plans have little value early on-especially if the prevailing interest rates are high.

The math really changes when your service increases and when you realize significant increases in pensionable income during your final years of employment.

[daylatedollarshort]

That is good advice. I am going to check the numbers on ours if I can. A couple of them had a lot of gyrations in the calculations over the years as they kept cutting benefits, so it might not be easy. But I did save a much of the plan literature.

[akck]

I can access my pension information online, so I can check my numbers at any time. That said, I also keep my pay history on a spreadsheet. I also save my last annual statement. Being a government pension, there isn't a big chance for any errors being made.

[brett]

I suspect that the larger plans, larger firms have this down pat, with on line systems etc. In my case, very few people were on the original DB pension, personal from the current owner knew little or nothing about the plan and they consistently tried to applied the terms and attributes of their plan to the grandfathered plan that I was on .

Plus, pension administration was outsourced, then outsourced to another firm a few years later. Lots of paperwork fell through those cracks. It was a dogs breakfast but I had the time and the incentive.

Looking back, it was probably the best per diem that I ever earned in my career.