The proportion of private-sector workers with access to traditional pension plans has been declining for decades. And many of those fortunate enough to still have this desirable retirement benefit frequently don’t even understand how the plan works.
A Fidelity Investments survey of 506 workers participating in active and frozen corporate pension plans found that 71 percent do not have detailed knowledge about how their pension plans operate. Many of the pension participants could not identify key features of their plan including the vesting schedule (31 percent) and the age they can begin receiving payments (27 percent), the online poll conducted by Versta Research in Evanston, Ill. found.
The majority of those surveyed (61 percent) say they have never inquired about how much money they will receive upon retirement. And 40 percent don’t know what their payment options will be upon retirement or when leaving the company. When asked to explain why they haven’t determined the monetary value of their pensions, the survey respondents say they will rely on their employer to provide the information when necessary (43 percent) and that they do not know whom to ask for information (29 percent).
“Understanding your pension benefits is an important part of developing an accurate income plan for retirement,” says Wendy Foster, a senior vice president for Fidelity’s defined benefit business. “There are many key areas that need to be addressed and analyzed, including vesting status, preferred payment method, estate planning, and the tax implications of any action.”
Despite a lack of knowledge about how much their pension plan is worth, the majority of people with pensions (56 percent) expect to rely on their pension payouts to cover living expenses in retirement. Workers with pensions expect an average of nearly a quarter (23 percemt) of their retirement income to be provided by them. These employees expect the rest of their retirement income to come from Social Security (26 percent), a 401(k) (27 percent), and other personal savings (24 percent).
Some pension plans give workers a choice between receiving their retirement payout as a stream of annuity payments for the rest of their lives or a lump sum. Most of the pension participants (56 percent) say they expect to receive annuitized payments from their plans when they retire. The median expected amount is $1,500 a month. Just 10 percent of those surveyed plan to take a lump sum payment and 9 percent expect a combination of both a lump sum payment and a form of annuity. Workers expect a median lump sum payment of $95,000. A quarter of those surveyed say they don’t know how they will be paid.