Recovering Frozen Pension – The Money that is Rightfully Yours
In past decades, a large amount of employees in the US and UK when they retired could count on availing a guaranteed monthly cheque (just like their salary) from their employer’s pension plan. These traditional retirement plans are referred to as ‘defined pension plans’, meaning that the financial amount of the pension was fixed, irrespective of the constant market fluctuations. In case, the market dropped, it was entirely the employer’s problem; the pension was sacred.
However, numerous factors have considerably destroyed the presence of defined or traditional pension plans worldwide. Increased life spans and rising costs have made pension plans very expensive for the employer to fund and arduous to manage. Additionally, the tendency of people to switch jobs more often has contributed to the erosion of pension plans in favor of defined, portable contribution retirement plans, wherein the value of funds can fluctuate as per the vagaries of the market. During the recent economic crisis, many employees watched in horror as their nest eggs tripped in value.
The combined factors have contributed largely in the diminishing of traditional pension plans from the corporate world and made employers to freeze the benefits of existing pension plans. Simply put, a frozen pension is when on employee’s retirement payments were started, but have ceased to continue.
Why would an Employer Freeze Pension?
A lot of pensions have been set on an ice over because of outright lack of funding or other administrative and monetary factors. Also, employers who are more focused on profit margins and balance sheets are offering their employees various sorts of settlement payouts to lessen risk in their retirement plans. However, these settlement plans can be complex and may come along with certain terms and conditions. You must read the fine print before accepting the offer.
Measures to take if Your Pension is frozen:
Employees with frozen pensions will still get all the monetary benefits that they have earned under the plan, prior to the freeze date; however, the further benefits will not continue to accrue if and till the pension scheme is unfrozen. And in case the plan unfreezes, pension benefits will automatically start accruing once more. In case, the plan is dissolved under the standard agreement, employees are typically offered 2- options of receiving either an annuity payout or lump sum from the plan.
In case of distressed or an involuntary termination, the PBGC (Pension Benefit Guarantee Corporation) will come for the rescue and cover any accrued benefits that are payable to employees up to a specific limit in case the fund becomes insolvent. You have to be really proactive; the first important step is to avail annual 204(h) statement from your employer that exhibits your earned benefits, which the assigned pension manager or employer is entailed by law to provide you upon request.
In case your pension has been frozen, now is the time to initiate making revised projections and plans for your retirement income. Most employees with frozen or dissolved pensions are provided 1-2 options: they can either avail a lump sum equivalent to net present value of a reduced payout in the future or reduced monthly payout.
A Less Complicated Method:
A more practical way may be to simply select the reduced guaranteed annuity payout and work for a few more years before taking it. Working for a longer duration facilitates you to delay availing the Social Security benefits till the age of 70. As per the Social Security Administration Website, ‘retiring at 67 will get you 108% of benefit you would have availed if you have had retired at 66. However, if you retire at 70, the amount soars to 132%. The accrual tops out at 70.
Furthermore, investors can help you in rectifying your savings shortfall by reassessing their asset allocation in order to maximize growth and increasing retirement plan contributions.
Regardless of what option you choose to go with, all information that relates to your pension benefits must be kept at a safe place. It is best to stay in touch with the fund managers and trustees, who will offer best advice on ways to melt your frozen plan and keep you updated.
If the serious cases of frozen plan seem to be rising, it is important that you seek help from professional agencies that excel in dealing with the instances of frozen pension.