Monitor Plan to Avoid Errors

It’s difficult, if not impossible, to find an error in your pension plan, especially after 40 years’ worth of calculations. Many experts therefore advise that you monitor the plan as you go.

How can you do that? The answer depends on what type of plan you’re in.

There are two basic types: Defined benefit plans, which promise to pay a set amount at retirement based on your years of service and your annual earnings, and defined contribution plans, such as 401(k) plans and profit-sharing accounts, where you contribute set amounts each year. The amount you ultimately get from a defined contribution plan depends on how much was contributed and how well the money was invested.

Defined Benefit Plans

If you are in a defined benefit plan, you should get a summary plan description. Chances are you got one when you were enrolled in the plan. But if you misplaced it, you can get another copy by calling or writing your plan administrator. If significant changes have been made to the plan, the administrator is also required to send you a revised description.

Read the plan description carefully, taking particular note of pivotal items such as whether overtime and bonus payments should be included in calculations of your retirement benefits and whether the final payout will be based on your highest-earnings years or your last years of service.

A salesman who had record sales years early in his career, for example, could lose out on thousands of dollars in benefits if the plan administrator incorrectly uses his final earnings rather than highest earnings to calculate benefits.

Those who have worked for company subsidiaries must determine whether those years are counted in the parent company’s plan or whether they are separately covered under the subsidiary’s plan.

If you returned to work for a company after some absence, scan the plan document to determine whether those early years of service count toward your pension benefits as well.

Then, when you get your annual benefit statement, call the plan administrator to ensure that your wage records match theirs.

If, for example, they are calculating your benefits based on a $50,000 salary, but you actually took home $60,000 with overtime--which, according to the plan description, should be included in the pension calculation--you have a problem that the administrator needs to fix.

You can also ask how many years of service have been credited to your account to make sure that meshes with how long you’ve actually worked there.

Defined Contribution Plans

Members of defined contribution plans, such as 401(k) plans, should keep pay stubs that indicate how much they’ve contributed from each paycheck. At the end of the year, add up the amounts, plus the stated investment return, to ensure that your records match with what appears on your annual benefit statement.

If the numbers don’t match, call the plan administrator. There could be a mistake in how the return was calculated or there could simply be a typographical error. Defined contribution plans require a tremendous amount of data entry--that’s computerese for typing. Typographical errors usually result in small mistakes, but even little errors can become significant when left to compound for 30 years.

If you direct your own pension investments and have several options to choose from, the annual math test may be all you have to do. However, if the company determines how the assets are invested--or if you’re only given one or two choices of how to invest your pension money--you should be on the lookout for losses. An occasional investment loss is nothing to fret about, but you should investigate further if your plan consistently loses money.

In some cases, plans invest funds in hard-to-value assets, such as limited partnerships and closely held corporations. Some administrators devalue these assets too aggressively, unfairly depriving plan participants of thousands of dollars in benefits.

Dealing with Problems

If you find a problem that is not promptly fixed by your company or plan administrator, call the Labor Department and ask them to investigate. Local offices are listed in the government section of the phone book.

If you’re recently retired--or have too many years in the plan to know if there have been mistakes in the past--consider having a professional review your payout. State bar associations can refer you to pension attorneys; the Pension Rights Center in Washington can refer you to local actuaries. The Pension Rights Center can be contacted by mail at 918 16th St., N.W., Washington, D.C. 20006.