Most Americans In the Dark About Their Pensions

[mickeyd]

I suppose that I should not be surprised how little folks know about their pension plans. Most employees are pretty ignorant about their 401(K) plans and they make regular contributions to that fund every payday whereas they do not normally pay into a pension plan. I do have to admit to the same inattention in the early years of receiving my annual "pension statement" from the employer.

Meanwhile, 61% of those surveyed said they have never asked how much money they will receive when they retire, Fidelity reported. The reason: 43% said they rely on their employer to provide the information if needed and 29% report they aren’t knowledgeable about the plan or they do not know whom to ask for information.
With pension participants expecting their pensions to supply one quarter of their retirement income, it is worrying that so few participants understand their plans. Fifty-six percent of those surveyed said they will rely on their pension payouts to cover living expenses during their retirement years, not for travel or hobbies.
Although 56% of the pension plan participants surveyed said they expect to receive annuitized payments from their plans when they retire, 10% plan to take lump sum payments and 9% expect a combination of both, one-quarter of those surveyed said they don’t know how they will be paid.

most americans don t understand how their pensions work, Fidelity Investments and pensions, vesting schedule - Financial Planning

 

[GregLee]

When I retired a year ago on a state pension, I did not understand how benefits were calculated or what my benefit would be. I didn't, and still don't, understand what the point of investigating it would be. While I worked, there were no choices to be made. I had to participate in the system, and I had to contribute 7% of my salary. I didn't have any spare cash to invest elsewhere. Why do research when there is no way to make use of the knowledge?

 

[REWahoo]

Why do research when there is no way to make use of the knowledge?

Ever curious to see if your benefits were calculated correctly? Guess not...

 

[Mulligan]

I've read a few times the average person in their lifetime, spend more time planning for vacations than planning and preparing for retirement, so this article fits right in with what I have read before. But then again, planning the perfect vacation does take a lot of time!

 

[GregLee]

Ever curious to see if your benefits were calculated correctly? Guess not...

When I retired and learned what benefits I would get, I became curious about that. But not before retiring. It never seemed interesting.

 

[mickeyd]

I've read a few times the average person in their lifetime, spend more time planning for vacations than planning and preparing for retirement

I've read that a number of times also. I wonder if there is any solid academic research on the issue? Common sense and knowledge of my fellow citizens indicates that it's probably correct.

 

[Alan]

When I retired and learned what benefits I would get, I became curious about that. But not before retiring. It never seemed interesting.

Is this because you knew it was going to be enough? Or that it was too little to worry about?

All our pension details were available on-line and I annually checked out the current benefits to ensure no mistakes had been made, and got an estimate for RE'ing at 55 which I plugged into FIRECALC.

 

[Rustward]

When I retired a year ago on a state pension, I did not understand how benefits were calculated or what my benefit would be. <snip<

How did you know that you could afford to retire?

 

[Bestwifeever]

DH's company went through at least 5 different pension plans in the three decades he spent working there (in the past 3 years they've had another new one). Not surprised that many people there (a pretty outspoken industry and work force) might not understand their pension plans.

And I wonder if calling HR to ask about pension benefits might have unintended consequences.

 

[kyounge1956]

I suppose that I should not be surprised how little folks know about their pension plans. Most employees are pretty ignorant about their 401(K) plans and they make regular contributions to that fund every payday whereas they do not normally pay into a pension plan. I do have to admit to the same inattention in the early years of receiving my annual "pension statement" from the employer.

Do you have some support for your statement that employees with DB pensions "do not normally pay into" their pension plan? I know I do, i.e. there is a deduction from my paycheck that goes into the pension fund. I can see from GregLee's post that he did too. I do remember from one of the numerous threads about underfunded pensions that there was at least one plan that the employees did not pay into, but I would be very surprised if that plan was the rule, rather than the exception.

most americans don t understand how their pensions work, Fidelity Investments and pensions, vesting schedule - Financial Planning

No argument from me on this one. I've been with my employer for 26 years, but the oldest annual pension statement I still have is from 1996—the end of my 11th year there. Then I have a five year gap until 2001 before I started keeping all of them. Up until 3 or 4 years ago, I had no idea at all how a pension plan works, and if it hadn't been for the market crash and its effects on the City's retirement system, I probably still wouldn't have a clue even though my target retirement date is less than two years from now.

 

[meierlde]

Where I worked as in Alans case there was a pension estimator on the intranet. You got an estimate of the pension you had earned to that point etc. (This happened after 2000, before then you would get a statement once a year printed out). Given how much time and effort this saves HR I suspect most companies do this, moving most benefit work to the intranet.

In my case from the day I hired on there was a book with details on the pension plan, the base formula was 1.5% times the number of years of some average, typically I believe it was highest 3 of the last 5, although there was also a career average formula as well. (It was a bit more complex because of the social security offset of course)

 

[JmfromTx]

Ever curious to see if your benefits were calculated correctly? Guess not...

Companies can make mistakes. When my wife passed away I received a lump sum from her pension plan. About three years later I got another check for over 40K with an explanation that they had miscalculated it. When I got ready to retire what scared me more for the folks I worked with(all younger than me) was that not a single one of them could explain how the company was going to handle retiree health for them. I was grandfathered (by four months) under the old plan which basically gave me an annuity to defray the cost of the company insurance. I'm pretty sure their plan will also give them an annuity but they will have to buy the insurance on the open market at a helluva higher price.

 

[donheff]

How did you know that you could afford to retire?

+1 The exact question I was going to ask.

 

[Mulligan]

Do you have some support for your statement that employees with DB pensions "do not normally pay into" their pension plan? I know I do, i.e. there is a deduction from my paycheck that goes into the pension fund. I can see from GregLee's post that he did too. I do remember from one of the numerous threads about underfunded pensions that there was at least one plan that the employees did not pay into, but I would be very surprised if that plan was the rule, rather than the exception.

No argument from me on this one. I've been with my employer for 26 years, but the oldest annual pension statement I still have is from 1996&#151;the end of my 11th year there. Then I have a five year gap until 2001 before I started keeping all of them. Up until 3 or 4 years ago, I had no idea at all how a pension plan works, and if it hadn't been for the market crash and its effects on the City's retirement system, I probably still wouldn't have a clue even though my target retirement date is less than two years from now.

Kyoung, part of the confusion with pensions, I believe with the general public, is that they sometimes don't understand there are as many types of pensions as there are types of Americans. Not wanting to make this a pro/con pension issue, but there is wide extreme of pensions that are poorly funded, fully funded, cola pensions, non cola, high payout/low payout, SS as part of the package, some you can't contribute to SS, high contribution, low contribution rates, etc. Just on a light note, my GF opened up her 401k statement last week and complained it was up only 4%. I asked over how much time, she said 3 months. I told her that is like 16% averaged over a whole year. She still wasn't impressed. I guess she thinks it's supposed to double every 2 years. I saw no benefit in continuing the conversation as it wouldn't have helped the matter.

 

[GregLee]

When I retired and learned what benefits I would get, I became curious about that. But not before retiring. It never seemed interesting.

Is this because you knew it was going to be enough? Or that it was too little to worry about?

No, I didn't think it would be enough. But I couldn't increase the amount by finding out what it was, obviously. If an investigation had revealed that it was not going to be enough, that would have made me fretful, and also my wife, and why go out of your way to find additional reasons to fret? I didn't see anything I could do to affect the situation. I can plan around unpleasant contingencies, but only if there's a point to it.

 

[GregLee]

How did you know that you could afford to retire?

I was fired, basically. I didn't know I could afford to retire.

 

[Spanky]

How did you know that you could afford to retire?

If Lee is retired from Hawaii's pension plan, the estimated pay is about 2% * number of years of service * average of earnings for the highest 3 years.

Benefits Estimate Calculator

For example, if the average salary is $100K per year with 30 years of service, the payout will be $60K/year for life time (option #1). There are other options, such as getting a refund of contributions.

 

[GregLee]

If Lee is retired from Hawaii's pension plan, the estimated pay is about 2% * number of years of service * average of earnings for the highest 3 years.

I am. But the details are pretty darn complicated. What are my years of service? I don't know, independent of what the retirement system tells me. I worked less than full time for many of the last 39 years, and I forget what fraction I worked for which year. Then I get an increased number of years because of accumulated sick leave, because I never was sick, for those years that the union contract specified that one gets retirement credit for unused allowed sick leave. (Don't ask me which years those were.) Then there is an interesting little wrinkle about "earnings" in calculating "average of earnings for the highest 3 years" -- does it mean what you actual earned, or does it mean your base pay, which, if you're working half-time as I was, will be twice your actual gross pay?

 

[kyounge1956]

Kyoung, part of the confusion with pensions, I believe with the general public, is that they sometimes don't understand there are as many types of pensions as there are types of Americans. Not wanting to make this a pro/con pension issue, but there is wide extreme of pensions that are poorly funded, fully funded, cola pensions, non cola, high payout/low payout, SS as part of the package, some you can't contribute to SS, high contribution, low contribution rates, etc. Just on a light note, my GF opened up her 401k statement last week and complained it was up only 4%. I asked over how much time, she said 3 months. I told her that is like 16% averaged over a whole year. She still wasn't impressed. I guess she thinks it's supposed to double every 2 years. I saw no benefit in continuing the conversation as it wouldn't have helped the matter.

I don't dispute that the issues you mention exist. Maybe I'm too thin-skinned about it, but it irritates the heck out of me when people make blanket statements like one I responded to. Saying people with DB pensions "do not normally pay into" the funds that support our benefits makes it sound like we are getting some kind of something-for-nothing deal. I think anyone who makes that sort of a broad-brush generalization should be prepared to support it with facts, acknowledge that it's nothing more than an unsupported opinion, or retract it.

 

[Amethyst]

I do remember from one of the numerous threads about underfunded pensions that there was at least one plan that the employees did not pay into, but I would be very surprised if that plan was the rule, rather than the exception. .

A thread from 2+ years ago addresses this:

http://www.early-retirement.org/forums/f28/those-w-pensions-how-much-do-you-pay-in-41737.html

Amethyst

 

[GregLee]

Do you have some support for your statement that employees with DB pensions "do not normally pay into" their pension plan? I know I do, i.e. there is a deduction from my paycheck that goes into the pension fund. I can see from GregLee's post that he did too. I do remember from one of the numerous threads about underfunded pensions that there was at least one plan that the employees did not pay into, but I would be very surprised if that plan was the rule, rather than the exception.

That's right, my paycheck did show a 7% retirement deduction. But it's complicated -- Hawaii state changed from a contributory retirement system after I was hired to a non-contributory system, so that more recently hired state employees get paychecks without that retirement deduction shown. I don't see that it really matters. If there is no retirement deduction shown on the paycheck, then the base pay offered by the state for a given position of course has to be lower, correspondingly, because the state has to take into account the pension liability they will assume for a new hire. It's just a formal administrative detail.

 

[Independent]

These results don't bother me:

... revealed that 31% of those surveyed said they don’t know their plan’s vesting schedule, 40% don’t know what their payment options will be upon retirement or when leaving their company and 27% don’t know at what age they can begin to receive payments.

There's no point in worrying about payment options or earliest benefit age until you're getting close to retirement. And vesting doesn't matter unless you're planning to quit.

But the 61% for "never asked" for a retirement benefit is amazing. I'd like to see the question and interview these people. My employer sent everyone an annual report with an estimated pension, then they went to a website where you could get numbers anytime you wanted. Maybe most people "never asked" because they already had the information.

I'd also like to see the breakdown by age. When I changed employers at 34, I never expected to work at that company till 59, so the pension was strictly an afterthought.

Edit to add a factoid: " The average employment tenure was 14 years. "

 

[martyb]

I'm 17 months away from my DB retirement commencement. But...I guarantee I've been reading and studying everything I could find about how it works for years, how much I can expect to receive, making estimates about the things that will be coming out before I get the net ie. med ins, life ins, survivor's benefit, fed taxes (not planning to pay any state income taxes) etc. While I don't know the exact bottom line just yet, I have a pretty good idea. I also know exactly how it all works. That's just my personality...no way I could just leave it all to chance. But then...I don't have the huge nest eggs many on this forum have either. I'm heavily depending on that CSRS pension for my (our) primary retirement income, along with a few other lesser sources.

 

[mickeyd]

Do you have some support for your statement that employees with DB pensions "do not normally pay into" their pension plan? I know I do,

That's a good Q kyounge. Nothing to support my statement.

It is my experience that corporate and military pensions are not usually contributory, but non-profits and state/local/school districts government plans are often contributory. (That's why I wrote "normally")

 

[kyounge1956]

A thread from 2+ years ago addresses this:

http://www.early-retirement.org/forums/f28/those-w-pensions-how-much-do-you-pay-in-41737.html

Amethyst

I missed out on that thread at the time. January 09 may be before bad news started coming out about the pension plan I'm a member of. Probably at the time I was still living in blissful ignorance.

I must confess I was surprised by the number of non-contributory plans mentioned in the thread, including the military. Maybe just the fact that military pensions fall into the "non-contributory" category validates the statement I questioned. The linked article says over 42 million Americans "currently have pensions" and it seems pretty clear (through the questions about vesting, payment options on retirement, etc) they are talking about people still employed who are covered by a DB plan through their j*b, not people who are already retired. I wonder how many of those are current and former military?