Over the past few years, pension benefits have come under increased scrutiny by employee advocates who claim benefits are often miscomputed and thus underpaid. If you’re targeted and it turns out you under-calculated retirees’ benefits, you might be surprised to find you owe a lot more money than you set aside. In response to the problem, the U.S. Depart- ment of Labor has issued a bulletin on 10 common causes of pension calculation errors.
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The following checklist focuses on how to avoid what the government says are the most common problem areas:
- Check your plan documents to determine the types of covered compensation. Be sure all relevant pay such as commissions, overtime and bonuses are included when calculating benefits.
- All appropriate years of service should be part of the computation, including years of service the employee may have worked in different divisions, if required by your plan.
- Use the correct benefit formula, including an accurate interest rate.
- Confirm whether you’re using correct Social Security data.
- Verify employees’ birth dates.
- If your company has been through a merger or similar transition, check that there’s no confusion regarding which pension benefits an employee qualifies for.
- Ensure that assets in each employee account are properly valued.
- Make all required contributions to pension funds.
- Double-check your calculations because basic arithmetic mistakes are common.
- Remind employees to promptly provide you with information on any changes in their status-such as marriage, divorce or death of a spouse-because stale data can affect benefit calculations.