If you have a pension plan at work, you’re in luck! It’s time to find out more about your plan (if you’re in the dark), and how much you’ll likely receive.

Corporate pension plans fall into one of two basic categories:

1. Defined benefit plans, and
2. Defined contribution plans.

Defined benefit plans (DBPs) incorporate a promise to pay out a regular income calculated according to a predetermined formula. With this type of plan, you’ll know exactly how much you’ll receive at retirement.

Defined contribution plans (DCPs), also referred to as money purchase plans, define the annual contributions required by the employer (and in many cases by the employee). The size of the pension depends on the amount of money accumulated through contributions and earnings in the plan.

Make sure that both you and your spouse have a good understanding of your pension benefits. It’ll be important to know if your plan will continue to pay your spouse an income after you die. Some company pensions end with the death of the pensioner. Others pay a reduced percentage to the surviving spouse. If there is no continuation of income, or if that income will be reduced significantly, both of you will have to make some decisions about how you structure your other sources of retirement income.

Find out if your pension is indexed since inflation can eat away at your pension benefits. Check to see if your pension provides for full or partial indexing, and find out when that indexing kicks in. Also check to see if your company plan is integrated. In other words, will your company benefits be blended with CPP to provide your income?  If your company pension plan is integrated, whenever you get pension income estimates from your employer don’t double-count your CPP benefits.

Here’s a list of questions you can use to help identify the important features of your company pension plan.

• What types of plans does your company offer? Do you have a choice? Will that choice make a difference in the amount of retirement income you could collect?
   
• Is there an eligibility period to belong to your pension plan? Do you have to participate? Do you have to make contributions? If so, how much? When does the plan vest so that you will be entitled to all your employer’s contributions? Can you make contributions above those required? Can you buy more pension credits to increase your income during retirement?
   
• What happens if you leave the company? Can the pension remain intact? Can you take it with you? Can it be transferred to a locked-in RRSP? What happens to the employer’s contributions? To your contributions?
   
• How much income will you receive if you stay with the plan until retirement? Will your entitlement be affected by government pensions? What happens if you retire early? Retire later? What’s the earliest date you could retire with full benefits?
   
• Is your pension indexed to provide protection against inflation? When does indexing begin?
   
• What happens if you die before you retire? After you retire? Does your spouse receive benefits? Are those benefits reduced in any way? Does your plan offer any income flexibility?
   
• What happens if your marital status changes? Will your pension credits be split automatically? Will a new spouse be eligible for your pension?
   
• If early retirement is encouraged or available, how will it affect your short-term (up to age 65) and long-term (after age 65) income? If your plan is integrated, will the company pay the CPP portion until you apply for benefits? Will your company increase your pension benefits to cover the amount you would have received if you had waited until 65 to claim your CPP benefits?

Next Week: Estimating Your Expenses