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Making Sense Out of Dollars

For women only

Part 3 of 7

Joel Lerner, Columnist
Posted 8/6/21

Do You Keep Copies of the Documents That Define the Provisions of your Pension Plan?

In addition to asking questions of company or pension plan officials, you should keep copies of the summary …

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Making Sense Out of Dollars

For women only

Part 3 of 7

Posted

Do You Keep Copies of the Documents That Define the Provisions of your Pension Plan?

In addition to asking questions of company or pension plan officials, you should keep copies of the summary plan description (SPD) and any amendments. The SPD is a document that pension plan administrators are required to prepare, and it outlines your benefits and how they are calculated. The SPD also spells out the financial consequences — usually a reduction in benefits - if you decide to retire early (earlier than age 65 in many plans). You probably received a copy of the SPD when you joined the pension or savings plan, but you may request another one from your employer or plan administrator. Also remember to keep pension-related records from all jobs. They provide valuable information about your benefit rights, even when you no longer work for a company.

What Happens To Your Pension If You Change Jobs?

You may lose the pension benefits you have earned if you leave your job before you are vested. However, once vested you have the right to receive benefits even when you leave your job. In such cases, the company may allow, or in certain cases may insist, that you take your pension money in a lump sum when you leave. However, other companies may not permit you to receive your pension money until retirement. The rules for your plan are spelled out in the SPD.

A word of caution: If you receive your pension in a lump sum, you will owe additional income taxes, and may owe a penalty tax. A better way is to reinvest your savings in another qualified pension plan or an Individual Retirement Account (IRA) within 60 days. You avoid tax penalties and you keep your long-term retirement goals on track.

If you do want to reinvest the money, it is important that you do not directly receive it. If you receive the money directly, you will have to pay 20 percent withholding tax on the amount you receive and then file for a refund in the next year, providing proof that you have transferred the funds to an IRA. Instead, instruct the pension plan administrator to transfer your pension money directly to an IRA you have established or to another qualified pension plan. This is easy to do using simple forms supplied by the new plan. If you want help with the forms, representatives of the plan are generally available to assist you.

Are You Entitled to a Portion of your Spouse’s Pension Plan Benefit if a Divorce Occurs?

As part of a divorce or legal separation, you may be able to obtain rights to a portion of your spouse’s pension benefit (or he may be able to obtain a portion of yours). Retirement plans are considered marital property. In most private-sector pension plans, this is done using a Qualified Domestic Relations Order (QDRO) issued by the court. You or your attorney should consult your spouse’s pension plan administrator to determine what requirements the QDRO must meet.

THOUGHT OF THE WEEK

“Be the person your dog thinks you are.”

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