|
|
THE DALLAS MORNING NEWS
Much attention has been paid to how workers should monitor their retirement savings accounts, such as 401(k)s.
But there's another component of retirement that you need to watch--your company's pension plan.
Pension plans are a hot topic these days. Many companies have announced shortfalls in their plans, which have been battered by the falling stock market.
One example is SBC Communications Inc., which disclosed in November that covering losses in its pension fund will cost the company between $1 billion and $2 billion in 2003, cutting into its profits.
In a traditional pension plan, employers kick in money to be invested by professional managers. Income from those investments funds retirees' checks.
In general, as long as your company is financially healthy, it can make up for investment shortfalls. But when it is in trouble, your pension could be threatened. A federal agency insures most pension payments, but that safety net stretches only so far.
So it's a good idea to find out the financial health of your pension plan. The good news is, unless you've been told otherwise, your plan is probably OK.
But it never hurts to ask.
When studying your pension plan, you'll need some key documents. Your company is required to provide them if you ask, but you can also get them on the Web.
Internal Revenue Service Form 5500, the Annual Return/Report of Employee Benefit Plan, spells out key financial information about a pension plan.
All pension plans covered by the federal Employee Retirement Income Security Act, or ERISA, must file a Form 5500 each year.
You can get a copy by asking your company. Or you can get one at www.freeerisa.com. As the name implies, it's free, but you have to sign up and give your e-mail address. The rub is that the information may be outdated. Companies have to file the form within seven months of the end of their fiscal year.
"In the best case, the information you receive will be six months to 18 months old," said Richard Hartzell, vice president and an attorney specializing in employee benefit plans at Banc One Investment Advisors in Columbus, Ohio.
Don't let the lag deter you. The 5500 is still an informative document.
The bottom line is: Does your pension plan have enough assets to cover future payouts to retirees?
You will find the current value of a plan's assets on line 2a and current liabilities on line 2b(4) on Schedule B, Actuarial Information , which must be attached to the 5500 form.
Subtract the liabilities from the assets. If you get a negative number, that means the plan is underfunded. In that case, divide the negative number by the plan's total liabilities to find the percentage by which the plan is underfunded.
For example, if the assets are $25 million and the liabilities are $30 million, then the plan is underfunded by $5 million, or 17 percent.
Don't panic if your plan is underfunded.
"One must always remember that there are three levels of protection afforded the pensioner," Hartzell said.
First, your plan is backed by its assets.
Second, the company is on the hook for making up shortfalls.
Federal pension law requires corporations to contribute additional money to pension plans if they're less than 80 percent funded.
If they're between 80 percent and 90 percent funded, they may be required to contribute additional amounts.
"These plans are long-term investment programs just as you save long term, and there is ample time for companies to make up losses incurred in the market in the last few years, either through return or through contributions," said Kathleen FitzPatrick, a pension actuary and senior consultant at Towers Perrin in Dallas, a management consulting firm.
Two major companies said recently stronger financial markets have helped their pension plans.
Ford Motor Co. executives said the recent surge in financial markets has reduced the company's U.S. pension liabilities by $1 billion.
Ford officials said better returns had trimmed the $6 billion deficit the company faced at the end of October. They said Ford has ample liquidity to cover its upcoming pension contributions.
International Business Machines Corp. said that because of the stock market's recent rebound, it now could fully fund its pension plan with a $3 billion contribution. IBM had indicated earlier that the figure was $4.5 billion.
Third, private pension plans are insured by the Pension Benefit Guaranty Corp., a federal agency.
If your pension fund collapses without sufficient assets to pay all benefits, the PBGC will step in.
"The PBGC safety net is wonderful," said Karen Ferguson, director of the Pension Rights Center in Washington, a consumer organization that advocates protection of workers' pension rights.
But there are limits to what the PBGC covers.
The annual benefit maxes out at about $40,000. It's lower if you begin receiving pension payments before age 65 or if your pension includes benefits for a survivor or other beneficiary.
"Most people fall under the $40,000 limit," said Karen Friedman, director of policy strategies at the Pension Rights Center.
There are places on the IRS forms to check for other troubles with your pension plan.