Taking Care of Mom and Dad: Earning Pension Benefits

Your parents began to earn retirement benefits as soon as they became participants in a defined benefit pension plan. However, they probably didn't have a permanent right to the benefits -- to become vested -- until they worked a minimum period of time, as specified by the plan. If they left their jobs before becoming vested, they would have lost their accrued benefits.

Being vested in a benefit means that a worker has completed sufficient years of service and is entitled to receive benefits accrued under the plan, whether or not the worker continues working for the company, until retirement.

Pension plans usually have one of two vesting schedules: cliff or graded vesting.

Under cliff vesting, workers must be fully vested after no more than five years of service with the employer. The plan, however, can specify a shorter period of service. Workers have no vested rights until this date. Although defined benefit pension plans require workers to meet age and service requirements before they can participate in a plan, workers cannot be excluded from participating because they are too old, even if they are hired within a few years of (or after) the normal retirement age specified in the plan. On the other end of the age spectrum, plans usually allow workers to participate if they are at least 21 years old and have completed one year of employment.

Under graded vesting, the worker must be at least 20 percent vested after three years of service and receive an additional 20 percent vesting for each of the next four years, with full vesting coming no later than at the end of seven years of service.

When a worker leaves a job in which he or she earned the right to a pension, the employer must provide information about these benefits. If your parents are about to retire, and they have vested pension benefits, it's important to verify their earned benefits before they leave. If they have pension benefits from different companies, it becomes key to stay organized.

Things to keep clear when organizing pension benefits: each plan's name; nine-digit employer identification number; three-digit plan number; name and address of the plan administrator or other representative; and copies of individual benefits statements.