# Incorrect calculations on DB pension?



## Rebecca (Aug 10, 2014)

A couple of months ago, a member here by the name of Fraser seemed to imply that his DB pension calculations had been in error and that he'd increased his monthly amount when he brought this up with his employer. He also mentioned that he had worked for a telecommunications company, so I was wondering if other retirees should be checking their payments too, to see if they're being underpaid.

Any thoughts on this?


----------



## fraser (May 15, 2010)

It was me and my DB pension was incorrectly calculated by the outsourced firm engaged to manage my former employers pension plan. Several errors, the most significant by far being what remuneration was included in pensionable income. I am in no way suggesting that this was an intentional error. I think that it was attributable to plain old incompetence (and not bothering to read or, a failure to comprehend, the pension document and associated amendments).

I cannot imagine someone not double checking their DB pension calculation. 

Also had the issue of incorrect record of CPP calculations. CPP did a good job of sorting that out for me...simply a clerical issue.


----------



## sags (May 15, 2010)

I agree with Fraser.

I enquired about the commuted value just before age 55, as I was retiring at age 55.

The HR company gave me an estimate of $280,000 or thereabouts. The company got permission from the government to offer commuted values at any age last year.

The commuted value for a similar pension was $650,000. A difference of $370,000. That shouldn't happen.......but it did.

I know my commuted value calculations were wrong..........because in 10 years I have already collected more than the commuted value and I am not even 65 yet.


----------



## Rebecca (Aug 10, 2014)

I didn't think that it was intentional, but wanted to know if this was something that I should check out. Is there any way to do so without contacting the former employer? I would hate to ask them to recalculate and then have them *decrease* my monthly amount.

I remember years ago, reading that mortgages were very often miscalculated, and there were companies who specialized in checking your bank's statement and then getting you a refund (apparently about 40% of people were being overcharged).


----------



## sags (May 15, 2010)

Sorry, you are talking about monthly benefits, not the commuted value.

How the monthly benefits are calculated should be available to all the members of the plan.

Does the pension plan have a website ? Many do and contain information of the calculation of benefits.


----------



## fraser (May 15, 2010)

In my case I did my own estimate of what my DB pension should be. It was based upon my knowledge of the DB plan based upon company provided documents, and my knowledge of my earnings history.

My estimated number and the number provided to me did not jive. We could not agree. So I did more research. I obtained the actual pension document as well as the subsequent amendments to the plan.

If I had simply asked for a pension recalculation I am certain that the same incorrect number would have come back time and time again. But my situation was very different since the performance bonus component of my total income was substantial.


----------



## Beaver101 (Nov 14, 2011)

^


> .. *If I had simply asked for a pension recalculation I am certain that the same incorrect number would have come back time and time again*. But my situation was very different since the performance bonus component of my total income was substantial.


 ... why is it that? I still don't see why you would get different results with the same set of numbers if the actuarial formulae/calculations being used are consistent or supposedly consstently being used by different pension "specialists". How is the average worker going to know if their pension values from HR are accurate, short of sending them for independent review?


----------



## fraser (May 15, 2010)

I read the DB pension handouts that the company provided plus I had all of may annual pension statements. I applied the data and the formula to my situation and came up with an estimate of what the number should be. Not only do most companies provide pension plan brochures to their employees, they are also obliged to provide, on request, access to a copy of the pension plan and pension plan amendments.

Most of the DB pension plan formulas are straightforward based on average salary X (service x factor) plus any adjustments for long service, early retirement benefits, bridge benefits, reductions for taking the pension early, etc. 

It is fairly simple to arrive at the estimated monthly pension number. The commuted value of a DB pension is an entirely different thing. For that I would suspect you would need some professional assistance.

Then I rec'd the company numbers-pension amount (and commuted value). It was different. I challenged, they remained adamant that their number was the correct one. 

I then went back to the actual pension plan document and pension plan amendments. It took some time but it was probably the highest hourly pay rate that I have ever had. Based on this, the company revised their number.


----------



## peterk (May 16, 2010)

^ Did they fix their system as a whole I wonder? Or just for you? What about the 99% of other pensioners carrying on clueless that they're getting underpaid?


----------



## sags (May 15, 2010)

When I asked to discuss my numbers with the actuary at Hewitt..........they told me an actuary didn't do the calculations, but they had a woman who had all the books about it.

I also had to pay $250 to get the document on how they came up with the commuted value, and all it contained was my length of seniority and the commuted value number.

They never did provide the information, and I ran out of time...............and took the monthly benefit, which was clearly defined in the pension contract.

Unless people question it...............they would never know.

There is nothing to be gained from the mistakes for the plan administrator, so I think it is general incompetence,


----------



## fraser (May 15, 2010)

My situation only impacted a few other people. They were adjusted.

What amazes me is this. Everyone screams for pensions. I can recall sitting in a management meeting and getting a pension report from HR on our DC plan. I was blown away by how few people actually logged into their DC accounts once they made their original fund allocations and even fewer still actually made changes to their allocations based on changing economic conditions. The number was so low that I asked for clarification to ensure that what I heard was correct. The company made all kinds of assistance available....VERY few people took advantage of it. And there were a fair percentage of employees who either never bothered to join the DC plan or failed to contribute to the max. matching amounts.

Go figure.


----------



## Beaver101 (Nov 14, 2011)

fraser said:


> My situation only impacted a few other people. They were adjusted.
> 
> What amazes me is this. Everyone screams for pensions. I can recall sitting in a management meeting and getting a pension report from HR on our DC plan. * I was blown away by how few people actually logged into their DC accounts once they made their original fund allocations and even fewer still actually made changes to their allocations based on changing economic conditions*. The number was so low that I asked for clarification to ensure that what I heard was correct. *The company made all kinds of assistance available*....VERY few people took advantage of it. And there were a fair percentage of employees who either never bothered to join the DC plan or failed to contribute to the max. matching amounts.
> 
> Go figure.


... this would be surprising if the staff was in a financial industry. As for the "all kinds of assistance made available", would you be able to elaborate? Were they general lunch and learn sessions or one-to-one or ?


----------



## fraser (May 15, 2010)

I was in the IT sector.

The assistance consisted of investment advisor by phone for advice and free access to research and monthly investment letters. Plus the usual lunch and learn and teleconference information sessions. These were very poorly attended.

This experience actually mirrors a recent comment from Manulife about how many people are not taking advantage of their matching DC funds and/or managing their funds once the account is established.


----------



## Eclectic12 (Oct 20, 2010)

fraser said:


> Beaver101 said:
> 
> 
> > ... As for the "all kinds of assistance made available", would you be able to elaborate? Were they general lunch and learn sessions or one-to-one or ?
> ...


+1 ... lots of talk but several companies I worked for looked at how poor the attendence was and made it mandatory or it was a black mark on the manager.

As an example - the HR summary of the DB pension, something like page 3 of the pension booklet and numerous slides in presentations (usually slide 3 or 4) explained that one's pension even at the maximum would be a percentage of working income. Despite this, when the "here are the pros/cons of staying with the DB pension or converting to the new DC pension" - about half the room gasped when the slide showing the maximum income from the DB pension was 60% of the best five income years of the last seven working years.

One co-worker who had attended several previous sessions said immediately after "I had no idea ...". 

One understood this decided the decision was too difficult to understand (despite my attempts to use easier terms) cut off the conversation by saying "if I have enough, I'll retire ... if not, I'll be a bag lady on Yonge street.


After due diligence ... it turned out that one third of the people attending had a much easier decision (including the two examples above). It turned out that for those in positions under a manager - the choice was have a DB pension or have none as the DC pension was not being offered to them.

I was the rare person to be able to pick out that this was the case. Never mind that I seemed to be the only one in about forty people who wasn't swapped by the terms/concepts so that I was able to notice that those staying in the DB pension had a bit over 6% being contributed to the pension (between employer and employee) but those choosing to switch would be moving to a combined 2% contribution where if the investment growth wasn't enough ... deal with it on your own.

The DC pension between those no longer receiving a pension and a 2% drop in employer contributions was going to be a significant cash savings to the employer.


Cheers


----------



## Eclectic12 (Oct 20, 2010)

I also had to high earning co-workers who couldn't see the value of the DB pension payout (and ten year guarantee) versus how restricted their RRSP contribution growth was because of the pension adjustment (PA). They were both adamant that getting rid of the pension to allow more RRSP contributions was better.

In frustration, my final comment was "run the numbers ... you may be surprised".

I'm not sure what one did ... but the other came back to thank me as by his calculations, the RRSP route would be out of money in four years. He decided to stay with the DB pension.



Cheers


----------



## Beaver101 (Nov 14, 2011)

fraser said:


> I was in the IT sector.
> 
> *The assistance consisted of investment advisor by phone for advice and free access to research* and monthly investment letters. Plus the usual lunch and learn and teleconference information sessions. These were very poorly attended.
> 
> This experience actually mirrors a recent comment from Manulife about *how many people are not taking advantage of their matching DC funds and/or managing their funds once the account is established*.


 ... I guess people do not really think about "retirement" when they're just establishing their careers, or busy raising families or until the need arises. 

In regards to the assistance from an "investment advisor", the expertise of some them in the area of pensions, retirement issues are questionable. I find more experts (real life) here on CMF than those "paid"-advisors. :wink:


----------



## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> ... I guess people do not really think about "retirement" when they're just establishing their careers, or busy raising families or until the need arises.


 ... or as a university student I went to school with said "I have decades to prepare for retirement so a kick *** stereo now is better". 

Meanwhile I was thinking that he had almost no financial responsibilities so anything he could do then would allow more flexibility later.




Beaver101 said:


> ... In regards to the assistance from an "investment advisor", the expertise of some them in the area of pensions, retirement issues are questionable. I find more experts (real life) here on CMF than those "paid"-advisors. :wink:


YMMV ... where the pension locks one into a set number of funds, sometimes the assistance can be valuable. Trying to use that same advice for a DIY retirement account that has a lot of choice is where the value drops off.


Cheers


----------



## sags (May 15, 2010)

A lot of people have no idea about their pensions, regardless of being handed pension booklets, union pension contracts, information meetings and a full time pension rep.

We had a lady working, who was missing at least one day a week because of day care problems for her kids. The company was getting on her case, and the union talked to her about it.

She explained her problems with daycare and the union guy asked her why she was still working at all, since she already qualified for a 30 and out pension.

They compared her take home earnings, minus a day absence a week plus her day care costs, versus her take home pension.........and she was better off not working.

She went in to get her pension papers.

People live in their own little world.


----------



## Beaver101 (Nov 14, 2011)

Eclectic12 said:


> ... or as a university student I went to school with said "I have decades to prepare for retirement so a kick *** stereo now is better".
> 
> Meanwhile I was thinking that he had almost no financial responsibilities so anything he could do then would allow more flexibility later.


 .... same here but only I needed to kick-***-my-student-loan (from parents with no such thing as a free lunch!) ... and then after so many years of working, how to kick-***-that ... and still working on it.! :biggrin:



> YMMV ... *where the pension locks one into a set number of funds, sometimes the assistance can be valuable*. Trying to use that same advice for a DIY retirement account that has a lot of choice is where the value drops off. Cheers


 ... how valuable is an advisor's assistance when you only have 12 funds to select from, 3 in fixed income, 3 from Balanced, 3 from Canadian Equity and 3 from US/International? Okay, add 6 more TargetLife funds to pick from for the truly confused, clueless or too busy to bother with? Besides, the "advisor" cannot help you "choose" the fund/investment. This is for a DC plan. For a DB plan, no fund picking is available or required. 

I think more value is added if the advisor can provide real life-cases "retirement" planning.

On the bright side of a DIY retirement account, one has no choice but to learn (aka forced) to make the right choices/decisions.


----------



## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> ... same here but only I needed to kick-***-my-student-loan ...


 ... no ... totally different situation.

I'm assuming student loan = debt which is different.

The student I'm talking about had no student debt, made enough on his four month work term to cover living/entertainment expenses for the term and bank enough to cover the next term for university (books, tuition, extra fees, living, entertainment etc.) plus have a buffer for increases plus have between $2K to $3K extra.

The choice was what to do with the "extra" where saving for retirement lost out to consumer spending.




Beaver101 said:


> ... how valuable is an advisor's assistance when you only have 12 funds to select from, 3 in fixed income, 3 from Balanced, 3 from Canadian Equity and 3 from US/International?
> Okay, add 6 more TargetLife funds to pick from for the truly confused, clueless or too busy to bother with? Besides, the "advisor" cannot help you "choose" the fund/investment.


 ... having watched the clueless or uncomfortable with investing types put 100% of the pension contributions into fixed income, not pay attention for years and then be surprised at how little it was worth - the advisors being paid for on the company dime seem to me to be useful to those people. Someone like myself had almost no need.

There was lots of sample asset allocations and offered consultations that were not used.




Beaver101 said:


> ... This is for a DC plan. For a DB plan, no fund picking is available or required.


So we are on the same page for type of pension but I'm not following the the point.




Beaver101 said:


> ... I think more value is added if the advisor can provide real life-cases "retirement" planning. On the bright side of a DIY retirement account, one has no choice but to learn (aka forced) to make the right choices/decisions.


Trouble is most that I was talking to didn't want to learn and weren't doing anything beyond whatever the company pension provided (DB or DC). Those who liked to learn, among other topics - learned investing/retirement info and the rest avoided it, same as most other financial topics.

If a DIY plan is "forcing" people to learn, how come people are missing out on employer matching (aka free money) in DC plans? 

The estimate in this article is that employer matching funds missed out on by one person was to the tune of $62,500!
http://brighterlife.ca/2014/09/30/e...-it-ever-too-early-or-too-late-to-contribute/ 


It would seem an easy sell and smart decision to contribute enough to max out the employer matching yet according to Manulife, in one DC plan alone *40% of plan members* are under the employer's matching cap and losing free money.

Another company reports regularly paying out in matching funds 40% to 50% of what they made available and budgeted for.

http://business.financialpost.com/p...ing-advantage-of-defined-contribution-pension


It seems to be an issue of inertia as a 2005 US study found that:


> ... providing employees with information about the free lunch they are forgoing fails to raise the contribution rates.


Other studies have found that putting the onus on the employee to opt out results in higher savings rates.


Cheers


----------



## fraser (May 15, 2010)

I worked with a lot of very smart people.

Yet when the company offered eligible people the choice of being grandfathered in the DB plan or taking a commuted value and rolling into a new DC plan most of them went with the herd mentality and did the latter. It took about 10 minutes of reading the DB/DC plan brochures and doing some basic math to figure out that it most cases remaining in DB was far better. Most of the people who went with DC did little or no research. They spoke to their colleague (s) and went with the flow to DC. And the final nail was that if the company was doing this, it was obviously for their benefit and not the employees benefit .....so why bite?


----------



## Beaver101 (Nov 14, 2011)

Eclectic12 said:


> ... no ... totally different situation.
> 
> I'm assuming student loan = debt which is different.
> 
> ...


 ... what can I say other than different strokes for different folks, especially for young adults starting out? :distracted: Besides, pensions/finanical planning is a really dry topic, let alone going to talk about "retirement". Will get back to you on your other points later.


----------



## Beaver101 (Nov 14, 2011)

fraser said:


> *I worked with a lot of very smart people.*
> 
> Yet when the company offered eligible people the choice of being grandfathered in the DB plan or taking a commuted value and rolling into a new DC plan most of them went with the herd mentality and did the latter. It took about 10 minutes of reading the DB/DC plan brochures and doing some basic math to figure out that it most cases remaining in DB was far better. Most of the people who went with DC did little or no research. They spoke to their colleague (s) and went with the flow to DC. *And the final nail was that if the company was doing this, it was obviously for their benefit and not the employees benefit .....so why bite?*


 .... I'm guessing these smart folks weren't in IT/engineering. :wink: 

And alot of misconceptions floating around just like those water-cooler chats.


----------



## Eclectic12 (Oct 20, 2010)

Beaver101 said:


> ... what can I say other than different strokes for different folks, especially for young adults starting out? :distracted: Besides, pensions/finanical planning is a really dry topic, let alone going to talk about "retirement".


I didn't realise when I was talking to him how rare he was in that the discussion was about the pro/cons plus he had a rationale. Most people since have their eyes glaze over, change the topic and seem to want to avoid any detailed discussion.

In his case - the topic was "spend, save or contribute to RRSP" so it was nothing like discussing formulas or other stuff.




Beaver101 said:


> ... Will get back to you on your other points later.


We seem to be drifting away from the thread so I'm thinking a new thread would be better ... I'll create one this afternoon.


Cheers


----------



## fraser (May 15, 2010)

These folks were in IT....engineering, computer sci, math grads, whatever. 

But I can assure you that a post secondary educational background does not necessarily imply common sense, independent thinking, or financial savvy!


----------

