Helen Liu | The importance of participating in your pension plan
The income derived from a pension plan can be very important as it may be the only source of funds or a very important supplemental income for a retiree. This becomes more critical with an increase in life expectancy.
Some employers have pension plans in the form of superannuation funds, which are mandatory for employees. The legislative framework surrounding pension funds ensure that members of pension funds can be informed and participate in the management of their pension funds.
Information relating to an individual's pension plan is crucial, as this will enable the individual to evaluate their financial position and plan for their future appropriately.
Under the Pensions (Superannuation Funds and Retirement Schemes) (Governance) Regulations, a new member is entitled to a copy of the plan's information folder and member's handbook.
The information folder must include: a description of a plan's operation; the fees and deductions for taxes, management and other expenses; the scope and limitation of investments of the plan; a description of the application of earnings of the scheme, with an explanation of risks; and a statement setting out the list and respective values of the assets and securities in the plan for the current year, and the rates of return earned and the basis of calculation used for each of the previous five plan years and for the cumulative five-year period.
STATEMENT OF RIGHTS
The member's handbook must contain participants' or beneficiaries' benefits, rights and obligations, including a statement of their rights to access certain information and their right to information, which must be disclosed; complaints resolution procedures; procedures for claiming benefits; and the names and contact information of the trustees, administrator, investment manager, auditor and actuary.
Trustees must also distribute a benefit statement, free of charge, to each active member of a plan within four months of the end of each plan year and to a deferred pensioner on request.
Amendments to pension plans can affect many aspects of the plan such as, structure of the plan, reductions in pension benefits or the solvency of the plan. A member either has the right to be notified of amendments or the right to vote on amendments, depending on the circumstances.
Where a decision will cause a material change in a plan, but does not require an amendment to the trust deed and rules, members should be given notice of the decision and an explanation of the material change and how their rights have been affected.
A material change includes, but is not limited to, a change of the status of the plan including whether or not the plan is being terminated or wound up, bankruptcy of the employer, liquidation, amalgamation or restructuring of the employer, reconstruction of the plan and merger of the plan with another pension plan.
Where the trustees intend to amend the trust and rules, the Pensions (Superannuation Funds and Retirement Schemes) Act states that the trustees must notify the members in writing that they intend to amend the trust deed and rules and that they are seeking the members' approval.
Under the act, the members may approve the amendments, seek clarification of the amendments, refer the amendments to the trustees for further amendments or refuse to approve the amendments.
Members can vote on the proposed amendments at a participant's meeting. Notice of such a meeting must be in writing, specify the date, time, place of the meeting, and state the reasons for the meeting.
The quorum required for a participant's meeting must not be less than 30 per cent of the participants entitled to attend and vote at meetings. If a member is unable to attend the meeting, a proxy may vote on their behalf.
Contributing to a pension plan is a way to ensure financial security after retirement. An individual that is contributing to a pension fund should be aware of the amounts in their member's account as well as whether or not the pension fund is performing well.
In ensuring that the plan performs well, members can actively participate by ensuring that they receive all of the relevant information and voting on proposed amendments. Having a general idea of the position of one's pension plan, can help an individual's decisions relating to their financial planning and their future financial security.
- Helen Liu is a member of the Pension Funds Association of Jamaica.