Just because you're leaving your job doesn't mean you're leaving behind your pension as well. You may be able to keep some or even all of your earned pension benefit despite not staying at your company until retirement. By calculating your total pension payout, you'll know exactly how many pension dollars are going with you out the door.
Collect Pension and Salary Documents
To calculate your pension payout, you need to track down the information for your calculation. You'll need a copy of your pension plan document as well as your salary history. You should be able to get this information from your old employer's human resources department.
While you're taking the time to visit human resources, you may want to ask if they can estimate your pension benefit for you. They should be pros at calculating pension benefits and will have no problem giving you an estimate. You can use this figure to check the math on your own calculation.
Understand the Pension Benefit Formula
Your pension plan document should list the formula for calculating pension payouts. While each company has a slightly different formula, yours will be some combination of your average salary and the number of years you worked at your old company. Take the pension formula and crunch the numbers using your own work and salary history. This will calculate how much of a pension payout you have earned for retirement from your years of service.
Review Your Vesting Schedule
After calculating your regular pension payout, your job isn't done yet. You also need to review your pension document for a vesting schedule. One of the reasons companies offer pensions is to keep employees from quitting. As a result, companies are allowed to reduce or cancel pension payouts to employees who leave early.
The vesting schedule lists the minimum number of years you need to stay at your job to earn your full benefit strings-free. If you quit before reaching this minimum, you'll lose some or all of your pension payout according to the conditions of the vesting schedule.
Understand the Pension Transfer Process
If you calculated that you will keep a pension payout after leaving your job, a few things could happen. Your company might want to hold on to your pension money until you retire, basically treating your payments as though you stayed in your job. You'll start receiving your pension payments when you reach the plan's retirement age.
Your company may also prefer to send you a lump sum payment to represent your future pension payments. You can move this payment into another retirement account or can simply keep the cash.
Be warned though that holding onto the cash is an expensive choice. The IRS will count this decision as a retirement withdrawal and will charge you income tax and a 10 percent penalty on the entire payment. If you want to avoid these costs, move your pension payout into another retirement account. You'll be able to access this money penalty-free when you turn 59 1/2.
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