Your pension benefit statement arrives every year, and most people file it away without reading it. That is a mistake. The statement tells you exactly what you have earned, what you will receive in retirement, and what decisions you need to make. Here is how to read it.
Accrued benefit vs. projected benefit
The most important distinction on your statement is between your accrued benefit and your projected benefit.
Accrued benefit: What you have already earned based on your current service and salary. If you left your job today, this is the monthly payment you would receive at normal retirement age. It is the real number. It is yours regardless of what happens to your employment going forward.
Projected benefit: An estimate of what you would receive if you stay until your assumed retirement date at projected salary growth. This is a future value estimate, not a guaranteed amount. It assumes continued employment and salary increases that may not happen.
Most people focus on the projected benefit because it is the bigger number. The accrued benefit is what matters for planning. It answers the question: what have I actually earned so far?
Final average salary and the formula
Your statement shows how your plan calculates your pension. Look for the benefit formula, something like 1.5% times years of service times final average salary. Find where the statement shows your current credited service (usually in years and months) and your current salary or the salary figure being used. Final average salary is calculated from your highest-earning consecutive years, typically 3 or 5 years depending on your plan. If your statement shows a current FAS calculation, confirm the years included are correct. An error here flows directly into a wrong benefit number.
Early retirement factors
Many statements show your benefit at multiple retirement ages: normal retirement age, early retirement age, and various ages in between. Compare these carefully. The difference between retiring at 60 and 65 is often 20 to 30% of your monthly benefit, permanently. If you are considering early retirement, the statement makes the cost explicit. Some statements show the early retirement factor separately as a decimal, such as 0.75, meaning you receive 75% of your full earned benefit.
Survivor benefit information
Statements often show your benefit at various survivor election levels: single life, 50% joint and survivor, 100% joint and survivor. This is the cost of survivor protection expressed as a monthly reduction. If your statement does not show this, request a benefit estimate from your plan administrator that models different survivor election scenarios. This is information you need before retirement, not after.
Plan funding status
If your statement includes a funded status section, read it. A plan at 70% funded has assets equal to 70% of projected obligations. Private-sector plans below 80% are in endangered status under ERISA and must adopt a funding improvement plan. Your accrued benefit is protected by PBGC even in underfunded plans, but future accruals are not guaranteed if a plan is severely underfunded.
What to request from your plan administrator
Your annual statement is a summary. The full document is the Summary Plan Description (SPD). Request it if you are within 5 years of retirement. It tells you the exact benefit formula, the exact early retirement factors, survivor benefit election rules, what happens to your pension if you become disabled, and your full rights under ERISA. It is the governing document. Read it.