Boomers should look for deferred vested pensions for retirement income

Posted: Friday, June 11, 2004

NEW YORK (AP) Millions of Americans have changed jobs at least once in their careers, and many have left behind pensions that can help support them in retirement.

Most of these pensions are held by their former employers or trustees for the companies until the retiree collects them.

Some workers aren't even aware they're eligible for this money until they're informed about the pensions when they register for Social Security benefits, said William J. Arnone, a partner in the human capital practice at Ernst & Young LLP in New York.

Arnone recommends older baby boomers start taking steps now to locate these pensions and, perhaps, consider drawing them before they turn 65.

The pensions he's talking about come from defined benefit plans. Unlike 401(k) plans, which are funded by contributions from workers, the traditional defined benefit plans are funded by companies. Each plan has its own set of rules on how long workers must stay at a company before they qualify for benefits and the ages at which the money can be paid out.

At many companies, you can get it as early as 55, Arnone said.

Someone who draws a pension that early will probably get considerably less than if he or she waits until age 65, he said.

''But there may be people who are out of work or disabled or desperate for money to cover big bills,'' Arnone said. ''This is something that could really help.''

In most cases, the benefits are paid out as annuities, a fixed monthly payment for a set number of years.

But even people who aren't desperate for the money should take a look at their pension plans and think about whether it might pay to begin drawing benefits early say at 58 or 62 and to invest the money at a potentially higher return than the plan guarantees.

Because the pension payouts are taxable as income, the calculations can be tricky, and Arnone suggests baby boomers seek help from financial planners or advisers in making such decisions.

Martin Heming, an attorney specializing in employee benefits at Reish, Luftman, Reicher & Cohen in Los Angeles, said that ''it certainly wouldn't do you any harm'' to look at collecting pension benefits early.

He noted that most plans call for an ''actuarial reduction'' in the amount of money you'll receive each year if you retire early. For example, a plan might pay $1,000 a month if you start drawing the money at 65, but $700 if you take payments starting at 58.

''You have the right to get a quote from the employer as to what your pension would be at each age and determine the factors by which they calculate the reduction,'' said Heming, a member of the board of the Chicago-based National Institute of Pension Administrators.

Ellen Bruce, associate director of the Gerontology Institute at the University of Massachusetts Boston, cautioned that boomers shouldn't be too quick to spend money now that they may need in retirement.

''What we see is many people taking the money whether from a defined benefit or a defined contribution plan and running, and that's a major concern in the pension world because they won't have it when they really need it,'' she said.

She added, though, that ''even if they don't need the money now, they should know what they're entitled to.''

Some workers may face difficulty in finding the company that promised them the pension. In some cases the company may have been taken over by another, and the worker's pension plan rolled in the merged company's program. Or the company may have shut down, with the pension money turned over to an insurance company for safekeeping. Or it may have gone bankrupt, with the government taking over the pension funds.

Bruce said boomers should check their personal files for copies of their pension plan provisions and any statements that indicate what they're entitled to at retirement.

If they can't find the documents or they can't find the company, there are two federal agencies they can contact by mail that may have information about their plans:

U.S. Department of Labor, Employee Benefits Security Administration, Public Disclosure Room, 200 Constitution Ave. NW, Washington, D.C. 20210.

Social Security Administration, Office of Earnings Operations, Attention ERISA, Correspondence Group, PO Box 33007, Baltimore, Md. 21290.

Pensions that have been taken over by the government are maintained by the Pension Benefit Guaranty Corp., which runs a Web site at Workers can check lists on the site to determine if the agency has their pension money.

Bruce's institute and the PBGC have prepared a brochure titled ''Finding a Lost Pension'' that is available on the PBGC site as well as the institute-sponsored site at

The brochure also can be obtained by writing the Pension Benefit Guaranty Corp., Communications and Public Affairs Department, 1200 K St. NW, Washington, D.C. 20005.

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