NEW YORK (CNNfn) - Unless you have an inner actuary begging for attention, there's a good chance you won't know if that lump-sum payout from your pension plan is less than it should be.|
There are ways to find out, though, as Thelma L. Davis learned. Davis didn't question at first the $25,000 she was given when she lost her job after her firm got a new owner. She just rolled it over into an IRA.
But at the recommendation of a co-worker, Davis hired a "pension detective" and together they learned the plan administrators miscalculated her benefits. Davis was owed another $11,573.
William E. Simpkin, an engineer who retired at 68, was also shortchanged when his company made two key errors in determining his monthly benefits. It overestimated how much he would receive from Social Security, which lowered his monthly pension payments, and it failed to notify him properly that under the company's plan he would not accrue pension benefits if he continued to work after age 65. As a result, the company owed him an additional $318 per month. By the time that was determined, they also owed him $14,000 in back pay for the months he had been paid incorrectly.
Errors not norm, but worth watching for
Such mistakes can be costly. They are not the norm in pension plans, but they are not uncommon, either.
According to one study by the Pension Benefit Guaranty Corp., for instance, an estimated 8 percent of participants in solvent, small pension plans that closed got shortchanged.
Most people don't know if they are getting the right amount of money, said Allen C. Engerman, head of the National Center for Retirement Benefits, Inc., which has helped Davis, Simpkin and others recover all or most of what is owed them.
"If you don't check your benefits you'll never get any additional benefits," Engerman said.
Of course, in some cases you don't have to check so much as be willing to spot the elephant standing in your living room.
A trigger for many people comes at retirement when they start receiving monthly checks worth far less than the benefits estimates they had received over the years, said Jeanne Medeiros, director of the New England Pension Assistance Project.
Keep good records
Most of the problems that undercut pension payments are due less to malice than to a host of administrative and actuarial mistakes.
Administrators might not figure in all the types of compensation allowed for under a plan, such as bonuses, overtime and commissions. Or, in a merger, only one of the company's pension plans might be adopted and you won't be given the maximum benefits promised under the old plan.
You can spot these and other problems more easily if you keep good records of your employment, payment and pension plan history.
"When you take a new job, create a file called 'Pension Benefits,'" Engerman said.
In that file, put benefits statements, summary plan descriptions (SPD), a detailed account of your full wages and employment dates, and any correspondence between you and the plan administrator. You are entitled to request an individual benefit statement once every 12 months, and you should get a new SPD every five years.
Engerman and John Hotz, deputy director of the Pension Rights Center, also recommend sending all pension-related correspondence certified mail, return-receipt-requested, or at least get written acknowledgement your letters were received.
Know the plan
But keeping good files is not enough. You should educate yourself about the pension plan.
"It's important to understand the formula under which your benefits would be calculated," Hotz said.
If you don't, make an appointment with the plan administrator or your company's benefits officer for a clearer explanation.
That way, you will be in a stronger position down the line to assess whether your payments were miscalculated.
Where to go for help
When you do take a lump-sum payout or a monthly pension, review your records and see if everything adds up. If it doesn't, "do the police work," Hotz said. "Get some evidence that something is wrong."
Once you do, there are a number of sources to call for help in making your claim to the company.
The NCRB (1-800-666-1000) will review your case but doesn't charge anything if its experts find you have received the right amount. If they do recover money for you, however, they will bill you for 30 percent of the sum recouped.
If you live in an area with a pension assistance project, experts on staff provide free help in investigating your case, writing the necessary letters to your employer and apprising you of your pension rights.
If you feel you need and can afford an actuary, whose charges might be hourly or fee-based, call the American Society of Pension Actuaries (703-516-9300) to get the names of experts in your area, including the names of certified pension consultants.
A pension lawyer may need to step in if your case involves legal interpretation of plan documents or if you know your company violated its fiduciary duty. For referrals, call the National Pension Lawyers Network (617-287-7332).
Get your due
You may not think it's worth all the effort if you're just being shortchanged by a few dollars.
But sometimes, as Simpkin discovered, what he thought was a small amount -- $30 a month -- turned into a few hundred after he and the NCRB did a full investigation into his pension records.
"There were multiple mistakes, and each one decreased my pension benefits," he said.