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What is an Integrated Pension Plan?

Money Manager | Monday, October 18th, 2010

An integrated pension plan is one that is specifically associated with a person’s Social Security payments. This is done so that the total benefit that should be received by the participant in the plan can be determined. In some cases, an integrated plan will be designed to work towards a certain total benefit amount. The plan will use pension funds and Social Security funds to combine towards reaching that total goal.

How does an integrated pension plan work?

An integrated pension plan is basically a retirement plan that adjusts the person’s benefits downwards, because of the fact that it combines them with the person’s retirement benefits from Social Security. This means that when a person retires, their monthly pension check provided by their employer can be reduced by either the total of all benefits that are received from Social Security, or by a portion of those benefits. These plans are often designed to provide a person with a specific amount of monetary resources during their retirement. Because the retiree is also getting a certain amount of monetary resources from their Social Security retirement benefits, the retirement benefits provided by the company will be reduced by this amount. That way, when the social security benefits and the pension plan benefits are added together, the total monetary goal amount is reached, but not exceeded. This is different from non-integrated pension plans, which are considered to be independent from a person’s retirement benefits from Social Security. A person with a non-integrated pension plan would not have any kind of reduction in their pension plan benefits when they also start to receive benefits from Social Security. However, if the person were to retire with an integrated pension plan, their pension benefits would be reduced by a specified amount at the point when they started to receive other monetary retirement benefits from Social Security, since these added funds would put the person over the specified retirement benefit goal figure.

Are there limits that protect how much an integrated pension plan can be reduced?

Having an integrated pension plan doesn’t mean that you still won’t be collecting retirement benefit from both your company’s pension plan and Social Security. It just means that the pension plan will be reduced by a certain amount, because the amount provided from Social Security must be taken into account. However, there are limits in place that protect how much an integrated pension plan amount can be reduced when combined with Social Security benefits. The law states that even if an employer is utilizing an integrated pension plan, they cannot reduce the benefits provided by this plan by more than 50%. This requirement has been in place since 1988. This means that even if a person’s Social Security retirement benefits, when combined with half of the retirement funds that would normally be provided by the person’s private pension plan, exceeds the designated goal retirement amount, the person’s integrated pension plan amount cannot be further reduced. This is because further reduction of the pension plan amount would put it under the 50% limit.

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