5 Factors That Could Put Your Pension at Risk

Simple mistakes that could go undetected for years, potentially costing you thousands of dollars.

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Last year, more than 100 pension plans failed. Even if yours isn't one of them, simple mistakes like your employer forgetting to factor in overtime pay or making a mathematical error could go undetected and compound for years, potentially costing you thousands of dollars over your remaining life expectancy. What factors put you at risk for these mistakes, and what can you do about them?

U.S. News talked to Rick Rodgers, a Pennsylvania-based certified financial planner, chartered retirement planner counselor, and author of The New Three-Legged Stool: A Tax Efficient Approach To Retirement Planning, for tips on making sure your pension is in shape, especially if one or more of these risk factors apply to you.

[See the 10 Most Difficult Retirement Decisions.]

1. Your employer has gone through a merger or buyout. If your company has merged with another company or has been bought out, that can change the equation (literally). "The old pension might have been based on a different formula, so sometimes they'll just apply the whole formula to the old pension," says Rodgers. "That gets messy."

The Pension Protection Act of 2006 requires plans to automatically provide individualized benefit statements, including total benefits earned and the vested accrued benefit or earliest date the benefit will become vested, every three years. If something seems amiss on your statement, start by requesting a copy of your plan document (not the summary plan description, since the U.S. Supreme Court ruled earlier this year that employers are not bound by the contents of the summary) and talking to your company benefits officer. "Even if you've been drawing for four or five years, you may get a retroactive check to make up for what you haven't been paid and an increase going forward," says Rodgers.

2. Your Social Security statement contains errors. If Social Security lists inaccurate information such as the wrong number of years on the job and your employer uses those inaccuracies to calculate your pension benefits, it could also throw off your pension. Now that the Social Security Administration no longer sends out annual statements, Rodgers suggests holding onto your last statement and your annual W2. However, for a $15 fee, you can request your Social Security earnings information using form SSA 7050. The process for correcting mistakes varies, depending on what the mistake is.

[See How to Predict Your Social Security Payout.]

3. You worked past age 65. Some pensions do not give you credit for working past the age of 65, while others do. In the case of Social Security, the formula changes. If you're entitled to credit for working past 65, make sure you're getting it. "Oftentimes, we find that they stop accruing benefits or we find that they're allowed to start drawing from their pension even if they haven't retired," says Rodgers.

However, just because you're allowed to start drawing from your pension doesn't mean you should. The decision to start drawing pension benefits is often irrevocable, so Rodgers says it should be timed carefully. A financial planner can explain your options and help you make the wisest decision based on your situation.

4. You forget to alert your benefits officer about a life change. Drawing pension benefits as a single person means higher benefits than drawing based on joint life expectancy, so anytime you marry, divorce, or lose a spouse, you'll need to update the benefits officer at your company. If you're married and do not want a pension based on joint life expectancy, your spouse must sign off on that decision. Not doing so may impact the amount of your benefit or may mean that your pension benefits go to someone other than you intended.

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Rodgers points to a situation where a widower named his children as the beneficiaries on his pension, then remarried and never changed the beneficiary forms, presumably because he intended to continue with his children as beneficiaries. "When he died, his spouse was entitled to his pension because she did not sign off waiving her rights," says Rodgers. "The rule is that your spouse has to sign off or it automatically belongs to the surviving spouse."