| BUSINESSWEEK ONLINE : DECEMBER 13, 1999 ISSUE | ||||||||
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| BUSINESSWEEK INVESTOR
Keep Your Eye on that Pension Review it regularly to be sure it's on track Some 40 years ago, Mary Oesterling, 73, worked as an itinerant music teacher in rural schools in Walworth County, Wis. When she left her job, she forgot that the school system had contributed $600 to a pension fund on her behalf. Then, a year ago, Oesterling, now in Hedgesville, W.Va., received a letter from an acquaintance who by chance had noticed her name in a Milwaukee newspaper on a list of people who had unclaimed accounts with the state. After responding to the notice, Oesterling got a phone call. ''They asked me how I wanted the money, in a lump sum or in installments. I asked how much money we were talking about, and they told me it was $22,000,'' she recalls. Oesterling is lucky. Not everybody can neglect a pension plan and come out ahead. Still, despite her windfall, she missed out on a chance to plan for her future. Indeed, financial planners and other experts say people should keep tabs on their pensions all through their careers--not just shortly before retirement--to ensure that their accounts are delivering the results they need for their later years. These days, with the proliferation of self-directed plans as well as plan changes by companies, the effort requires more vigilance than ever. One of your first tasks in monitoring your pension is to ensure that it's being run in your interest. Remember, practices such as the use of pension-plan contributions to pay off company debts or invest in high-risk business deals are illegal. While plans of big corporations are likely to have professional managers and checks worked into the system, those of small companies may not. John Hotz, deputy director of the Pension Rights Center, a Washington advocacy group, says people who work for small businesses, such as medical practices, may be especially vulnerable to employers who ''set up profit-sharing or 401(k) plans and then begin to think the money belongs to them.'' A company's failure to provide you with regular documents on the plan's status is a tip-off to possible foul play. Another sign: unusual purchases of expensive items, such as a yacht, by the company's owner. EXECUTIVE SWIPE. The Labor Dept. reports that in the five years ended on Sept. 30, it opened 24,523 civil and 660 criminal investigations of plans suspected of misusing or mismanaging employees' money. In the same period, courts ordered restitution of more than $1.9 billion to plans from civil and more than $13.2 million from criminal actions. A typical case: Community Care Systems, a Massachusetts health-care company that agreed to deposit $140,000 to its subsidiaries' 401(k) plans for failing to put money withheld from workers' paychecks into the accounts. In addition to making sure your pension assets are going where they should, periodically revisit the investment choices you've made. Maria Scott, editor of the AAII Journal, published by the American Association of Individual Investors, says people with a 401(k) or similar plan should check that their mutual funds and other investment selections are doing well. She recommends a monthly or quarterly review--even for young workers with small portfolios. That way, they don't wake up one day to find that they have a lot less than they could have, had the cash been invested wisely. Closely study the summary plan description, the summary annual report, and your individual benefit statements, says Hotz. The plan description tells you how much your employer should contribute to your account. Your company is required to provide an annual report, which gives you a picture of the plan's overall health, but not the individual benefit statement, which details your savings. Under law, you should be able to get your benefit statement on request. If your employer balks at providing these documents, send a request not just to the company but also to the plan fiduciary, who must meet federal disclosure rules. If you think you, like Oesterling, have lost track of a pension, ask your former employer for documentation. If the company has failed or stopped the plan, contact the federally chartered Pension Benefit Guaranty Corp., which takes over plans that companies close. Plan changes are a hot-button issue nowadays as more companies switch to so-called cash-balance plans. While beneficial to younger workers, the change could result in sharply lower savings if you are middle-aged or older. That's because a cash-balance pension provides a low but steady accrual of benefits, while the traditional plan is backloaded, with the bulk of the benefits earned in later years. So workers in their 40s, 50s, and 60s might see their pensions reduced significantly as a result of the switch. Recognizing how these changes can affect your savings can help you do a better job of planning--whether by upping the money you put away or even changing jobs. Janet Krueger, a 46-year-old former IBM software designer in Rochester, Minn., faced that dilemma when the company switched to a cash-balance plan in July. She found that under the traditional pension, she could have had ''a reasonable retirement income at age 55.'' But under the new plan, ''I would have had to work to age 70 to actually match what I would have received at age 55.'' As a result, she left IBM and now works as a software consultant for Rochester Technology Center. ''Learn as much as you can as quickly as you can, both about your rights and what your company is doing,'' she says. ''It doesn't seem valid anymore to assume that your company is going to take care of you.'' On the Internet, sites such as cashpensions.com and pensions-r-us.org provide message boards as well as information on the issue from employee and retiree groups. NEW RULING. Employers are required to notify employees of any plan change that could cut their future pension-benefit accruals, whether they are in a self-directed 401(k) plan or a defined-benefit pension in which just the company contributes. But, as Senator Daniel Patrick Moynihan (D-N.Y.) said last March when he introduced a bill requiring more disclosure, the law ''can be, and often is, satisfied with a brief statement buried deep in a company communication to employees.'' His bill calls for employers to give detailed assessments of the impact of changes on each participant. Meanwhile, the Ninth Circuit Court of Appeals ruled on Aug. 30 in two cases, Bins vs. Exxon and Wayne vs. Pacific Bell, that companies must tell workers of plan changes under consideration--even before a decision is made on whether to implement them. Ron Dean, a pension lawyer in Pacific Palisades, Calif., says that means that if a change is being weighed, ''the plan or the employer or the fiduciary has to tell'' employees about it--not just respond if an employee asks. But Mark Ugoretz, president of the ERISA Industry Committee, which represents employers on benefits issues, says the ruling would lead to confusion, since a company may consider several options that can be contradictory. Because nothing may happen to these proposals, it ''forces the employer to cry wolf,'' he says. So far, the decision affects only Alaska, Arizona, California, Guam, Hawaii, Idaho, Nevada, the Northern Mariana Islands, Oregon, and Washington State. Exxon is appealing. However these changes play out, the onus is still on you to stay on top of your plans--and to put alternative savings in place before it's too late. BY ELLEN HOFFMAN _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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