How does retirement vesting work?

November 9, 2005 11:34 AM

How does vesting work in a company pension?

How does vesting work in a company pension? I'm 52 years old and vested in the pension of a large corporation. I want to retire early but my company has just done away with its early retirement program.

Can I leave, support myself some other way until I'm 65 and then start collecting benefits?

Thanks for any insight you can offer into how this works. I'm reticient to ask around in Personnel until I have to.

posted by chocolatepeanutbuttercup to Work & Money (5 answers total)

That depends on the language in your plan. I'm guessing you have an old-school defined-benefit plan and they might have anything from a "cliff" type vesting schedule where you are 0% vested for the first five years and then become 100% vested; to a graded schedule where you gain 10% vesting each year until you're 100% vested after ten years. From what I last remember, ERISA requires that you'll be 25% vested after 5 years and 100% vested after 15 years, but the precise schedule you'll have to ask your HR types about.

You certainly can leave and start collecting benefits at age 65, but how much of your benefit you get to collect depends on how far through the vesting schedule you made it. If your plan has a 5-year cliff, and you leave after 4 years, you're entitled to nothing. Leave after the 5th year, and you're entitled to your full benefit.
posted by Wolfdog at 11:59 AM on November 9, 2005

Response by poster: Sorry, I should have clarified - I'm fully vested in the system (after 5 years, I think.)
Thanks for your answer.
posted by chocolatepeanutbuttercup at 12:30 PM on November 9, 2005

You need to examine the literature for your plan. Since you are vested you will get benefits at age 62 or whatever the appropriate year is under the plan. However, by leaving now you will likely not participate in any health plans, and your benefits are likely to be much less than if you stuck around to 62. They may actually be higher per month than if you retired early, but you won't be collecting them in that period between when you leave and age 62.
posted by caddis at 1:39 PM on November 9, 2005

Vesting really has little to do with payout/retirement choices, other than if you're not fully vested, you get less money. As others have said, what you will be paid in retirement depends entirely on your plan.

You should talk to the Personnel department and at least get all their printed information on what benefits will be, for retirement purposes. You don't have to tell them that you're considering leaving early - everyone should be planning for when they reach age 65 whether or not they stay with their current employer. So asking for all printed retirement information is good planning, not disloyalty.

In general, the earlier you start drawing retirement pay, the less it will be per year, because (of course) you'll be drawing retirement pay for more years. (Similarly, for Social Security - you can start taking it at age 62, for example, but you'll get a smaller paycheck than if you wait until age 66.) You also may miss out on health benefits (which may have their own requirement, such as ten years at the company), and if your retirement is based on your salary for (say) your best-paid three years, then leaving early will, at minimum, result in some loss due to inflation (assuming your salary would have risen by at least the rate of inflation).
posted by WestCoaster at 3:12 PM on November 9, 2005

Yeah, at 52 there's no reason you couldn't be thinking about retiring at 55 or 60, and that's plenty of ways down the road. Unless you have a Machiavellian HR department.
posted by dhartung at 10:07 PM on November 9, 2005