Corporate Pension Question Part 2

Corporate Pension Question

What is the name of your state? New York state

I am a 40 year-old fully-vested employee in a Fortune 500 Company incorporated in New York State.
I will be leaving at the end of September. My Company's benefits department tells me I need to cash out my pension and "roll it over" into a private IRA. They say that although it is legal to leave my existing balance in the Company plan that if I do so it will not continue to accrue interest after I leave. This sounds like mule-cookies to me. Help!

First we need to determine exactly what kind of retirement plan you're talking about. While many individuals use the word "pension" to refer to any type of retirement plan, a pension plan has a very specific meaning as to the type of plan it is.

A PENSION plan means it is a "defined benefit plan" - i.e. there is no cash value per se but a participant will receive a monthly income after retirement based on a formula using some combination of the number of years worked for the employer and wages earned.

On the other hand, a "defined contribution plan" means that the Plan defines the contributions going IN - not the benefit received at retirement. A 401(k) Plan is the most commonplace defined contribution retirement plan around these days.

Since roll-over is an option, I'm guessing that you're talking about a 401(k) Plan or similar, in which case what you are being told is nonsense. While no more contributions can/will be made after you leave, the monies in your 401(k) account certainly will fluctate depending on how the money is invested, which includes accruing interest if your investments increase in value.

I suggest you go back to the benefits department and speak to someone else and this time, someone who knows what they're talking about. That size of company almost certainly has one or more senior managers in their benefits department.

What is the name of your state?
New York state
My plan is a traditional pension plan, i.e. a defined-benefit plan. I am trying to learn if (as a fully-vested employee) when I leave the Company (a Fortune 500 company) next month I can leave the pension undisturbed with the Company or whether I have to "cash-out" (the benefits dept's word) the pension and place any cash I receive with a private investment firm such a Vanguard.

You need to either (a) talk to a senior benefits person where you work, or (b) contact the Plan Trustee and see what they say, or (c) take a copy of the Plan Document to an investment advisor and have them review it and advise you.

Without reading a copy of the Plan Doc it's impossible to answer your question.