Taking Care of Mom and Dad: Funding the Pension Plan

Employers are responsible for funding the defined benefit plans that they sponsor. They usually contribute enough each year to cover the normal cost of the plan, an amount that is at least the value of the benefits that participants in the plan earned that year. They may also have to make additional contributions to cover investment losses. If an employer fails to make the legally required contributions, it can be penalized in taxes for every year the deficiency exists. If, however, the employer is facing financial hardship, the IRS will work with the company and allow for a funding waiver...and the workers are notified of this waiver. In some cases, the plan may file for a lien (legal claim) against employer assets for unpaid contributions; or the employer may be forced to post security for a portion of the underfunding. These actions are taken to protect the pension beneficiaries.

The person who administers the pension plan is known as the plan administrator. This person's responsibilities include keeping the workers fully informed of their rights and benefits, making pension payments to retirees and beneficiaries, paying insurance premiums to PBGC and making reports to plan participants and to DOL, IRS and PBGC as required by law.

Under federal law, a pension plan administrator must give workers the following information:

• Summary Plan Description. This document includes information on how the plan operates, when participants are eligible to receive their pensions, how participants can calculate the amount of their benefits and how to apply for them. This information must be given to workers within 90 days after they become participants in the plan. The plan administrator must notify participants about changes in the plan and, every five years, provide an updated version of the summary description if the plan has been modified.
• Summary Annual Report. This contains information on the financial activities of a pension plan and must be provided to workers annually.
• Notice to Participants. Participants in plans that are less than 90 percent funded must receive an easy-to-understand notice reporting the funding level of their pension plan, indicating how much of their pensions are currently covered by the plan assets. The notice also explains what benefits in the plan would be covered by PBGC's insurance in the event the pension plan terminates.
• Individual Benefit Statement. This statement shows the benefits a participant has accrued under the plan and tells whether the participant has a vested right to receive them. Participants can request this information annually and when they leave for another job.

If your parents ask for pension information and they fail to receive it, they should contact the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration (PWBA) at: U.S. Department of Labor, 200 Constitution Avenue NW, N-5625, Washington, D.C., 20210.