Can I Withdraw From My Pension Plan If I Leave the Company?

Significance

A pension plan offers you several choices when you leave your company. When you retire, you may take your pension as a lump sum amount, lifetime payments with no beneficiary payment to your spouse or a reduced lifetime pension payment with lifetime payments made to your spouse when you die. If you're not ready to retire yet, your pension savings are held until you retire.

You don't ever lose a pension. If you've worked for a company for many years and you retire, you can count on the pension from former employers to supplement Social Security benefits and your personal savings. You do have to keep track of your past employers and get the paperwork from them to file for your benefit payments, but these benefits are always there for you. The Employee Retirement Income Security Act (ERISA) and the Pension Benefit Guaranty Corporation (PBGC) ensure you receive what you've earned from your pension.

You may lose your pension if you haven't earned the benefits yet. Your employers may require that you earn your pension through one of two vesting schedules. A vesting schedule is a time period you must remain employed by your company before you receive benefits. The vesting schedule is either a five-year cliff vesting or a seven-year graduated schedule. The five-year cliff vesting is a schedule where you don't earn any pension benefits for five years. If you leave your employer during this time, you lose all pension benefits. The seven-year schedule is a schedule where benefits are earned over time. Each year you earn more of your pension until you finally earn 100 percent of your benefits.

You should consider keeping a personal savings in addition to your pension plan from your employer. A personal savings gives you direct control over your contributions to the plan as well as investments in the plan. If you move around a lot or you expect to leave your employer before you've earned your pension benefits, a private savings in an IRA will help you save money without being tied down to an employer.