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Francis Vayalumkal
Finance | Financial advice

A Pension For Knowing
By Francis Vayalumkal

Donít procrastinate when it comes to planning for your future. Yes, free time is in short supply and there are many details to keep tabs on, but if you want to live comfortably after retirement, you need to pay attention now to how you will finance those years.

Most people draw money for retirement from several sources, including social security, savings and investments. For millions, a significant part of retirement comes from pension funds sponsored by private corporation or unions. If you are planning on using funds from a pension, it is critical to learn all you can about your plan.

There are two types of pensions: defined benefit plans and defined contribution plans.

  • Defined contribution plans include 401(k) plans and profit-sharing plans.
  • The defined benefit plans are the more traditional pension plans.

    The benefit plan stipulates that you will receive a specified monthly benefit for life beginning at the time you retire. The benefit is usually determined using a formula that takes into consideration the number of years you were employed and your average salary in the final years of employment.

    Pensions are governed primarily by federal law. Congress passed the Employee Retirement Income Security Act (ERISA) in response to mismanagement of direct benefit plans. This law sets minimum standards for private industry pension plans.

    If you participate in an ERISA-covered plan, you will receive a summary plan description. It is wise to review the description because it provides explanations for plan operations, when and how you receive payments, as well as how to file a benefits claim. It also explains that when you will become fully vested in the plan, you earn full rights to your accrued benefit, including both your companyís and your contributions, even if you leave your job before retirement age. Although you are always entitled to your contributions and investment earnings, you are only entitled to your employerís contributions after working there a set number of years. In many companies, employees are fully vested after five years of employment, although that can vary.

    Each year, you also will receive the planís summarized annual report. In this report, you can find out who manages your pension money. As a concerned participant in the pension plan, you have many rights, and reviewing the annual report provides you with an overview of how your rights are being considered. Your basic rights are as follows:

  • Money invested in the plan is only for the participants;
  • Administrative expenses must be reasonable;
  • Diversified, prudent and low-risk investments are mandatory.

    Take the time to read through individual benefit and account statements. Make sure your birth date, Social Security number and other basic information is correct.

    Keep a pension file with your employment history records and be sure to notify your plan administrator of any changes that will affect your payments, including address changes.

    An essential aspect not to be overlooked is your survivor benefits. Determine whom you should contact within your company about pension plan questions and educate yourself about changes in pension benefits if your company merges with another. Safeguarding you pension takes time, but itís important to know the regulations and your rights. Itís your future, so you have the most to win or lose.

    Francis Vayalumkal is a loan officer at Market Street Mortgage and can be reached at (813) 971-7555 or via e-mail at

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