THE OCCUPATIONAL PENSION BENEFIT ACT, OPBA, has made provision for pension plan members to be regularly informed of the status of their accumulating pension benefit. In addition, it has made provision for relatively early vesting of pension benefits and for greater portability of pension funds.
Every year, the administrator of the pension plan must provide a written statement to each plan member setting out the specifics of the contributions made to the plan by the employee, if any, and by the employer as at the end of the previous year, plus the accumulated return on the investment.
For a defined benefit pension plan, DB, that statement will also show the specifics of the member’s projected benefit at their normal retirement age as at the end of the previous year.
For a defined contribution plan, DC, the statement will show the accumulated balance of the pension fund for the member’s account: namely, the member’s contribution and the employer’s contribution plus the accumulated investment return on the fund as at the end of the previous year.
Each member will have a confidential report on exactly what is happening with their pension year by year. Each member is in a position to monitor the growth of their pension funds and they can raise questions or seek guidance.
Is the pension fund/projected benefit growing? Is there a need to supplement the projected benefit with a personal plan? What about more detailed investment information/advice for members in a DC plan?
With regards to vesting, this term relates to the period of time before the contributions made by the employer are owned by the pension plan member.
Although an employer will make contributions to the pension plan for the account of the plan member, if the plan member leaves before the vesting period has passed, the person is only entitled to the benefit of his contributions, the accumulated return thereon plus any amount that may be vested/owned in part of the employer’s contribution.
In the past, employers had vesting periods that were as much as ten years. A long vesting period may have been considered as providing greater motivation for each staff member to remain with the company for ten or more years in order to be fully vested, thus reducing staff turnover.
The OPBA requires that the vesting period does not exceed three years. Thus, after a plan member has worked past the third anniversary with a particular employer, if he moves on to another employer, he is entitled to the claim the contribution by the employer along with the accumulated return thereon as part of his pension account balance.
That brings us to the matter of greater portability of pension funds. Under the OPBA, if an employee leaves his current employers for whatever reason, he is entitled to ask that his accumulated pension benefit go with him within prescribed ways.
If he is moving on to a new employer, it can be moved to the new employer’s pension plan. Alternately, the employee may elect for it to be placed in a registered retirement saving plan as prescribed by the regulations of the act.
The employee can also elect another option, which is to purchase an annuity from an insurance company as prescribed in the regulation of the act. However, payment from the annuity are not allowed to begin before a prescribed date which is related to his retirement date under the past employer’s pension plan.
The amount that he would be entitled to move differs for a DB plan and a DC plan. For a DC plan, the amount would be the accumulated fund in the account for the member’s benefit at the date of departure.
However, for the DB plan, the amount of the projected pension benefit would have to be reduced actuarially to the present value or the commuted value, and whichever is the higher value would be selected.
• Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances. Email: Louisefairsave @nationnews.com This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd.
