A Guide to Deferred Benefit Pensions
Did you leave a pension benefit with a prior employer? If you received a “Statement of Deferred Benefits,” you may have a Deferred Benefit Pension waiting for you at retirement.
What is a Deferred Benefit Pension Statement?
A Deferred Benefit Pension Statement alerts individuals that they may have unpaid retirement benefits with a former employer. These benefits are yours, but in some cases, you cannot access the benefits until you attain the retirement age specified in the plan, typically between ages 60 and 65. Remember, these are your benefits, and the amounts can help with your retirement income plan.
What Should I Do if I Receive a Deferred Pension Benefit Statement?
If you receive a Deferred Pension Benefit Statement you should take the following steps:
Contact: Reach out to your former employer and request an updated benefit statement, a current plan booklet, known as the Summary Plan Description (SPD). The SPD is important because it outlines your options and choices when it comes to receiving benefits.
Review: Work with a financial advisor to determine the amount of benefit, when it can be paid out, and the form of the distribution. For example, the plan may allow distributions in the form of a lump sum, or the plan may mandate the distribution be made in the form of monthly annuity payments over your lifetime.
Important Note: Oddly, receiving a Deferred Benefit Statement does not guarantee you still have benefits within that plan. You may have benefits, but frequently these statements are sent to participants who had deferred benefits at one time. Therefore, it is important to contact your former employer and determine if you have benefits in the plan.
What Can You Do with Your Deferred Benefits?
The plan document will specify what you may do with your benefits. Please consult with your advisor before taking action to determine the best route for your plan and retirement goals. Choices could include:
1. Take Lifetime Income
Pros: A guaranteed income in retirement. The amount will depend on the plan’s value, and investments are handled for you.
Cons: Less flexibility, as a survivor benefit is often the only form of inheritance of the pension.
2. Transfer It to IRA or Other Plan
Pros: Direct control of your investments if the pension is taken as a lump sum and distributed into another retirement account.
Cons: Lose guaranteed income in retirement and take on the market risk of managing the account.
3. Early Commencement
Pros: Begin receiving monthly payments at age 55+, if your plan allows it.
Cons: Receive reduced monthly payments for beginning the plan before the normal retirement age.
What Happens if the Plan Sponsor Goes Bankrupt?
If the plan is a Defined Benefit plan, your benefit is usually protected by a federal agency known as the PBGC. If the plan sponsor fails, the PBGC steps in and makes benefit payments to the retirees.
Action Checklist
What can you do to ensure your deferred benefit pension remains part of your retirement plan? Below are a few key recommendations:
Maintain an Updated Address: Plan sponsors and their service providers periodically contact participants via mail, with additional digital opt-ins. Contact your plan administrator to ensure your address is up-to-date and provide an updated address if you move in the future.
Request a Benefit Statement: Request an estimate of your benefit at your expected retirement age to help determine income in retirement.
Designate Beneficiaries: Clarify who is allowed to inherit your benefit under the plan and update any beneficiaries.
About October Three
October Three specializes in helping organizations and their advisors deliver Defined Benefit retirement plans that are easy to understand and built to retain top talent. From tax-efficient Cash Balance plans to pension risk transfers, terminations, and plan optimization, we’re more than a vendor. We’re a partner who understands the pressures you face and has the expertise to help you and your participants get more out of their retirement plans. Learn more about our employer services and how we support advisors today.
