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> Planning > Communications State & Local
Affiliate Communications Mary Rowland Personal Finance Column for the States — December 2006 Q: Hello, I live in Minnesota. I would like to know whether you can borrow from your pension plan. And how does that work? I have been on my job for 4.5 years. It will be five years in January. A: That depends on what kind of plan you have. The question you are asking has to do with “vesting” in a pension fund. Vesting refers to the time when you have ownership of the money in your plan. Once you are vested, benefits must be paid to you even if you leave your job. If you quit your job or are terminated before becoming vested, however, you can’t collect any of the money set aside for you by your employer in your retirement fund. Traditional pension plans are called “defined benefit” plans because the employer defines the benefit you will get and the employer is responsible for providing that benefit when you retire. In this type of plan, all employees’ money is pooled together rather than being tagged for a particular person. If one person took money out, it could hurt others in the pool. So borrowing from this type of plan is against the law. In “defined contribution” plans like 401 (k)s and 403 (b)s, where the employee contributes to the plan, the vesting schedule is usually shorter, which means the money is available sooner for loans from the plan. But you are not allowed to withdraw your money unless you change jobs and if you do so, you must pay tax on it. This is a long way around saying that you should not look to your pension fund for emergency cash. Nor should you consider borrowing against your retirement fund as a good long-term option. Suppose an employee borrowed $10,000 from his defined contribution plan and left his job two months later. All that money would be due immediately. I’m from Minnesota, too, so I’ll offer you a piece of advice that you didn’t ask for. Your letter suggests that you are casting about trying to come up with some quick cash. Every way of getting quick cash carries big penalties. If you take money from an IRA, you pay tax plus a 10 percent penalty. If you borrow from a lender, you pay high interest. If you rob a bank or a gas station, you go to jail. Please let us know what you decided to do and whether you changed your budgeting or other money habits in any way. Q: My teenage son claims the Internet always offers the best deals. How do I teach him the difference between “deals” and thinly disguised ads? A: What an important lesson, for teens and for the rest of us, too. Many (most?) product-oriented web sites claim to offer the best buy or the best price, or the best selection, but how can we possibly know if that’s true? Your son could learn something valuable by researching an item that catches his eye. What he wants to see is whether the site is offering objective analysis or merely a product push. For example, some sites offer comparison prices at different merchants to help you find the product you want. A good clue to objectivity is when the site doesn’t pick a merchant for you, but offers only information and links. For example, www.gasbuddy.com collects and offers information from other web sites on the price of gas around the country; www.gaspricewatch.com operates in a similar way using spotters around the country. I call these research sites. Farecompare.com and kayak.com do the same thing for airline fares, showing you the best fare between your departure and destination. Another site, jellyfish.com compares prices, warranties, size, quality and helps you earn cash back – usually 2 or 3 percent – by sharing its commission with you. One lesson your son should learn is this: Never buy on impulse. Go shopping with an idea of what you need and what you can expect to pay for it. Q: We never know what the children should send their grandparents for the holidays. We feel the grandparents are hurt when they receive nothing from the children. Any ideas? A: Just yesterday I heard a woman in the thrift shop tell her friend that she has almost no holiday responsibilities this year. “What about the grandkids?” the friend wanted to know. “Oh, that’s easy,” the woman said. “They never tell me anything about their lives. When they stopped sending thank you cards, I just wrote them off.” My own mother has strong feelings about keeping in touch with her grandchildren, too, and equally strong feelings about people who receive gifts and fail to send thank you cards. But hounding kids about contacting their grandparents can be a thankless task. What about having the kids send the grandparents something they’ve made or a project they’ve done in school? Or a term paper or sculpture or a certificate or award, explaining what they did to accomplish it and whether they enjoyed it. Lack of communication seems to be what hurts grandparents. If your children would write something or draw something and write a note explaining what it is and why they sent it, I’ll bet the grandparents would be pleased. Or you might have your child design a coupon book with coupons for a telephone call on the first Sunday of each month or a birthday hug or lunch or a movie out. Our kids gave both their grandmothers MailStations, a device that allows you to send and receive email without a computer, for their birthdays a couple of years ago, delivering them to their homes, setting them up, giving instructions on how they work and paying for the first year of service. When the children send email to update grandma on school or college, that’s the best gift. # # # Mary Rowland is a nationally known business and finance writer. The former personal finance columnist for the New York Times and former co-host of a nationally syndicated radio show, Ms. Rowland is the author of several investment books and speaks regularly to consumers and financial planners about investing and personal finance.
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