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Pension Disputes: Lessons to Learn From

Gene Kirzhner Dec. 18, 2017

When most people think about pensions, they may imagine a prospective retiree who spent 40 years working at the same company. The loyal employee eventually retires and gets a monthly check. While that may be true for some people, pension benefits are increasingly more complex as company and employment culture changes to fit an increasingly fast-paced world. A secure, comfortable retirement is every working person’s dream, and pensions ply a big part of that. With the average American living longer, retirement finances need to plan for the long-haul. Pensions play a large part in retirement financial planning. Facing pension disputes or discrepancies can have a big impact on your retirement plans. Let’s take a closer look at how pension benefits work, and how to prevent disruptive pension disputes and handle them should they arise.

Defined Benefit Plan

A pension is essentially a defined benefit or fixed payout paid out of a company’s pension fund or retirement account. The type of pension payout you receive depends on how long you’ve worked for your employer, and on the size of your salary. Your employer will manage your pension. The employee has no say in investments or managing the funds. However, many companies offer retirees the choice between a lump-sum payout or a monthly “annuity” payment upon retirement. Companies that offer pensions to their employees are required to establish and contribute to a pension fund to meet their obligations to retirees. Many larger organizations rely on third-party companies to invest and manage pension funds. Smaller companies may find it beneficial to handle retirement account administration in-house.

Generally speaking, pension qualifications depend on how long you worked for the organization before either leaving or retiring. Additionally, your benefit amount is typically calculated from your salary rate of the last year or last few years’ average salary. In other words, the longer you work for a particular company, the larger your pension benefit will be when you retire. This is not always true, however. The terms of a pension payout vary greatly from company to company. Some worker’s pensions include multiple companies and salaries. Many people who receive pensions will only get a small benefit rather than a benefit representative of their former salary, and it may come from a company the worker left years and years ago or several companies. It’s important to have your pension plan’s vesting terms in order well before you begin planning for retirement.

What Are Pension Disputes?

Pension disputes are lawsuits between an employer and the retiree over their pension benefits payout. Pension disputes usually involve:

  • Denial of pension benefits

  • Disputes over taxes or insurance

  • Timing on pension payouts

  • Amounts of payments (either in total or monthly annuity amount)

  • Will distributions of a deceased employee

Resolution of Pension Disputes

There are guidelines in place for employers when issuing pension benefits. However, government entities do not handle private pension disputes. Some legislation exists to manage this system. “Pension plans are required to be fully funded and insured under federal law,” with a few narrow exemptions for religious organizations. There are two primary legislative acts that affect pension disputes are the Pension Protection Act and the Employee Retirement Income Security Act. This legislation was put in place to benefit retirees and requires employers to be thorough in establishing and adhering to their pension benefit policies. The Employee Retirement Income Security Act of 1974 guarantees retirees the right to sue in federal court if their pension plan’s appeal process fails. The Pension Protection Act of 2006 establishes strict requirements and tax incentives for pension plans.

The two Federal agencies that guard the nation’s private pension system are the Department of Labor and the Internal Revenue Service. Given the size of the system, they do not regard pursuing private pension disputes as part of their job. The I.R.S. focuses on ensuring pension plans meet federal tax break requirements, but little else. This leaves the responsibility largely on the shoulders of the retiree. In class action suits where large numbers of employees have been denied pension benefits, employers may be ordered to adjust their pension policies to avoid future pension disputes.

Help Settling Pension Disputes

If you feel that your pension benefits have been negatively affected in any way, you may wish to file a private lawsuit. Pension disputes are both complex and time-sensitive legal matters. Additionally, you will benefit from the involvement of a lawyer with experience with pension disputes. Your lawyer can help you organize all the documents and review what options are available to you. A pension dispute attorney can represent you and expedite the dispute process to ensure you get the benefits you deserve.