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Life Health > Life Insurance

Pension nightmares and how to avoid them

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As advisors, increasingly you’re working with retirees who have pensions, or more commonly than you’d like to see, pensions with problems. Rick Rodgers, a CFP, and founder and CEO of Rodgers & Associates, has written a book, “The New Three-Legged Stool” that details pensions, their problems, and what advisors and consumers can do to protect their clients and themselves.

Rodgers writes that while the Pension Protection Act of 2006 “was designed to close loopholes in the pension system and addresses problems for the roughly 34 million Americans covered by traditional pensions known as defined-benefit plans,” one problem not addressed by PPA but continues to affect millions of people of all ages, not just retirees are pension miscalculations.

“Anytime you change jobs or take a lump-sum pension cash-out, you are at risk,” adds Rodgers. “Women are especially vulnerable to pension mistakes because they tend to move in and out of the workforce more often than men. For the most part, pension mix-ups aren’t intentional.”

According to Rodgers, how would a consumer know if there were an error that had been compounding for many years? How can they ensure that they’ll get what’s rightfully theirs when retirement arrives? He says it’s up to the consumer to keep track of their pensions, but it’s a good opportunity for advisors to help those consumers navigate some murky waters.

Here are two things Rodgers says consumers can do. They can also act as an open door for advisors to educate those clients and prospects.

  • Educate yourself about how your plan works.
  • Contact your company benefits officer and ask for a copy of the plan, not the summary plan description. (In May, the U.S. Supreme Court ruled that you can’t depend on your employer’s summary plan description. The summary is an abbreviated form of the plan. The Court held that if there are discrepancies, the plan is the controlling document. You need a copy of the plan to determine how your pension is calculated. The plan document can run 50 pages or more.)

In addition, Rodgers says there are seven common pension mistakes to watch for:

  1. The company forgot to include commission, overtime pay or bonuses in determining your benefit level.
  2. Your employer relied on incorrect Social Security information to calculate your benefits.
  3. Somebody used the wrong benefit formula (i.e., an incorrect interest rate was plugged into the equation).
  4. Calculations are wrong because you’ve worked past age 65.
  5. You didn’t update your workplace personnel officer about important changes that would affect your benefits such as marriage, divorce or death of a spouse.
  6. The company neglected to include your total years of service.
  7. Your pension provider made a mathematical error.

In closing, Rodgers says for consumers to protect themselves, they should (or with the help of their advisor) “create a “pension file” to store all your documents from your employer. Also keep records of dates when you worked and your salary, since this type of data is used by your employer to calculate the value of your pension.


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