Pension benefits are one of the most important employment benefits you can have in your career, but what happens to them if you quit your job? Unfortunately, there is no easy answer to this question. For example, employment contracts and rules on pensions vary depending on the jurisdiction you are located in. Since it is a long term employment benefit, it is understandable that many employees may not understand all aspects of their pension. Read on to find out how to research your pension and factor that information into your decision to quit your job or stay on. You may decide that the cost of losing your pension (or part of your pension) may be greater than any raise you receive at a new position.
In most cases, employees generally receive some kind of pension benefits even if they quit their jobs. The exact benefit you receive will vary depending on your employment contract and other factors. If you have very recently started a new job (i.e. been in a position for a year or so), you may not receive any pension benefits at all.
Researching Your Pension
Assuming that you have some time to consider your options, and the impact quitting may have on your pension, go through these research steps to better understand your pension benefits.
- Defined Contribution or Defined Benefit: Pensions tend to fall into two broad types; defined benefit (DB) pensions pay out a specific amount to retirees based on a specific formula (often including years of service). Defined contribution (DC) pensions do not guarantee any specific benefit on retirement — the plan simply guarantees how much the employer will contribute to a plan. How much money you end up receiving depends on investment performance.
- Read Your Pension Manual: Since pension benefits are often subject to regulation, most organizations provide a pension manual or other document that explains how the pension plan operates. This document can usually be obtained from the human resources department. Carefully look for any sections that describe pension penalties, clawbacks or limits. Even though the language may be technical or complex, this document is a great starting point.
- State and Federal Employees: Employees who work for state governments and the federal government generally have a higher level of legal protection for their pension benefits. If you are part of a union, review the latest collective agreement, or union contract, to find out more about your pension benefits and penalties.
- Opportunity Cost: Many pension plans pay benefits based on the number of years one has worked for the employer. Your pension benefits earned with 10 years of service versus 20 years of service are likely to be quite different. Factor in the opportunity cost of not building up addition pension benefits over time. The formula for calculating your benefits should be in your pension manual, employment contract or some other human resources document.
Do You Need To Seek Professional Advice?
After completing the above research, you should have the basic facts you need to understand your pension and how it works. In some cases, you may want to seek additional help from an accountant or tax lawyer. Certified public accountants can double check your math, help you understand your financial situation better and advise you on your tax situation. High income earners, or those who are anxious about their pension documentation, may benefit from consulting with a lawyer with expertise in employment law, taxes and pensions.
Before seeking professional advice, make sure that you bring together all the documentation you can about your pension and come with a list of specific questions you want advice on. Professional advice can quickly become very expensive if you are unfocused and unprepared.
References and Further Reading
To learn more about pensions, social security and policies that can help you come up with your own answer to the question, "Do I get a pension if I quit my job?," consult the resources in this section.
Employee Benefits Security Administration (U.S. Department of Labor), https://www.dol.gov/ebsa/
Pension Rights Center, https://www.pensionrights.org/
Retirement Resources, https://www.usa.gov/Topics/Seniors/Retirement.shtml
Image Credit: Investment Performance, Kentucky Retirement System/Investment Performance, Public Domain