My Megacorp retirement plan changes - trends of the future?

[bssc]

My megacorp just provided us with a training seminar on the changes that were being made to the defined contribution retirement plan. (The defined benefit plan went away years ago). Interesting highlights.

1) All new people are automatically signed up for the 401(k) when they start employment. They have to opt out if they don't want to save money. This seems to be a good trend.

2) Anyone starting after April Fools day while get less benefits (about 10% versus the current 12%) in terms of matching and profit sharing. Current employees get a conversion percentage. This seems to be a trend too.

3) Of course, to get the full 5% match portion, you have to contribute 5%. The FA indicated that this wasn't always possible and that people should start out with 1% if possible and work their way up. One of the other FAs asked my friend's class who paid less than $150 a month on cell phones and she was the only who held up her hand. In our class, at least one person asked about the maximum ($15,500 this year) and the FA seemed surprised. He also didn't mention that saving 1% didn't mean that your paycheck dropped by 1% but less because of lower taxes.

4) TPTB have limited options to six basic funds, company stock and a target fund. If you want anything else, you have to get a self managed brokerage account. I did just to get access to the S&P 500 index.

5) They limited the amount in company stock to 10%. I know some people who have all their retirement in the company stock. I think that this is a good thing.

So, the new employees will be working a little longer, hopefully paying lots into Social Security.

 

[al_bundy]

$150 a month on cell phones? holy carp

 

[mikex]

My company ended its pension plan participation for all new employees at the beginning of this year, but they do have 401k. Seems like the trend.

 

[SteveR]

Yep, that is the way things are going. No pension plans. More restrictions on 401Ks and "opt out as an additional task".

My current mini mega corp. has no pension plan...never did.
Has a 401K with Vanguard (Yea!) with a 50% match on the first 4% contributed.
No retirement program at all...no retiree medical insurance; no carry over of stock options (they expire the day you leave), no retiree life insurance, no nothing other than the 401K plan.

They just changed their stock options program (again) to eliminate it. No more ISO stock options starting this year. Not a big deal since all mine from the past 4 years are all underwater. They are replacing the ISOs with Restricted Stock...vests 50% every two years. This is an improvement from the ISO vesting period of 5 years but the tax treatment is different for Restricted stock vs ISOs.

They dropped their ESOPP progam two years ago.

They pay at the low end of the scale for similar jobs.

And they wonder why they can't keep good people.

 

[Spanky]

Yep! pension plans and other benefits are slowing getting less generous while pay, perks, and benefits for executives (upper management, e.g., CEO, COO, CFO) are getting more generous. As an example, the executives of Northwest airlines are to receive stock options in excess of $27 million as the company emerges from bankruptcy after the labor force had made various concessions, e.g., pay cut , reduced benefits to help the airline.

 

[Texas Proud]

WOW... telling people to start of at 1% and work up to me is a BAD FA...

They should be telling them that at least put in the 5% to get the matching NOW.... that it will grow quickly... you will only feel pain a short time before you get used to the new number...

As the cell phone questions demonstrated... people pay a huge amount of money on stuff they don't need.. they can cut back some and not notice it in the least.

 

[saluki9]

$150 a month on cell phones? holy carp

My cell phone bill is $200 a month, thankfully my company pays

 

[Gotadimple]

They should be telling them that at least put in the 5% to get the matching NOW.... that it will grow quickly... you will only feel pain a short time before you get used to the new number...

Yes, but! When you're first starting outing 1% is an easy way to start the investment, especially if money is tight. It's an easy 'sell' to show someone how little 1% is and then talk to them about increasing it in 1% increments every year. It's how I learned to LBYM. By the third year, I was ready to increase the deduction by more than 1%.

-- Rita

 

[chinaco]

There are a few companies bucking the trend... but they are few.


The company that I work for still offers a Defined Benefit plan (good one) and retirement health care. They intend to continue doing it.

Why. Because the industry requires enough specialized knowledge that they think they need to retain employees. They offer these because they feel it helps with retention.

However, while the company pays a competitive wage, they do not pay in the top 10%. They manage expenses.


DW megacorp has a similar approach. I will not mention the name of the company (household name). They have a special variation on the defined contribution plan. They recently reduced the amount they contribute (substantially) for new employees. Older employees were grandfathered.


Things are a changin'! As we become more intertwined in international business and economics... companies will continue to struggle with lower wages (competition) in developing countries. Things will normalize. But not in our lifetime.

 

[Texas Proud]

Yes, but! When you're first starting outing 1% is an easy way to start the investment, especially if money is tight. It's an easy 'sell' to show someone how little 1% is and then talk to them about increasing it in 1% increments every year. It's how I learned to LBYM. By the third year, I was ready to increase the deduction by more than 1%.

-- Rita

Sure, I know that... but telling the whole group is a cop out IMO... and the people will think that they will have a retirement stash when they are old, but will not...

You 'sell' the 5% because of the match... you sell that the 100% match is something you can not give up.. and if that is too much then drop it down to 4%... at the END, you say "DO SOMETHING"... even 1% is better than none... but that is the plea for them to start... YOU SELL 5%.. you accept 1% if the person is an idiot..

 

[Andre1969]

My cell phone bill averages about $120-140 per month, BUT, that's for FOUR phones! I have both of my roommates and my uncle on the plan with me! So in reality, that's more like $30-35 per person, per month.

As for retirement plans, I used to work for McDonnell-Douglas and then Boeing once we got taken over. Back then they did have a pension plan. When I reach age 65 (2035) I'll get $349.20 per month. And that's NOT adjusted for inflation! So I imagine that'll be like getting $100 per month in today's dollars.

I did start investing in a 401k with them,but kind of late in my tenure with them. Their company match was 25%, on up to the first 4% of your pay. So in effect, the most you'd get was a match equivalent to 1% of your pay.

My next company didn't have a pension. But the 401k was better. I forget what the matching rate was. I think it was 50% on up to the first 6% of your pay. Or effectively, 3% of your pay.

My current company automatically gives you 3% of your pay, whether you contribute or not. I think that's pretty cool. Our contract is up for renewal in Spring 2008, and word on the street is that we've gotten too big. The gov't likes to award the contract to small "disadvantaged" companies. So it looks like our current company, like the one before and Boeing before that, will be on its way out. I wonder what kind of 401k the new company will have?

 

[Celany]

Yes, but! When you're first starting outing 1% is an easy way to start the investment, especially if money is tight.

Correct me if I'm wrong here, but when a lot of people change jobs, it's to get more money right? I know that depends on a lot of factors, if an industry is tanking, or something is older, it may be harder to find a job that pays anywhere near as much. But for a lot of people, they switch jobs to make more money. So money shouldn't be as tight as it used to, right?

I dunno, if I were an FA, I'd aim to encourage them just a week bit higher 2-3% still sounds small, but it's a heck of a lot better than 1%.

 

[theoldwizard]

My megacorp just provided us with a training seminar on the changes that were being made to the defined contribution retirement plan.

Ford Salaried now has 2 plans. The "old farts" still have DB, anyone hired after (IRRC) 2001 is DC.

1) All new people are automatically signed up for the 401(k) when they start employment.

Ford salaried new hires have to wait 13 months

2) Anyone starting after April Fools day while get less benefits (about 10% versus the current 12%) in terms of matching and profit sharing.

Match on, match off at Ford, depending how bad things look.

3) Of course, to get the full 5% match portion, you have to contribute 5%. The FA indicated that this wasn't always possible and that people should start out with 1%

Bad advice. "Pay yourself first" and "Pay yourself the most you can afford !"

4) TPTB have limited options to six basic funds, company stock and a target fund. If you want anything else, you have to get a self managed brokerage account.

That's nice ! The Ford salaried 401k allow you to choose from about 20 mutual funds, a money market "like" thing, company stock and some ETFs. Outside brokerage account ? No way !

5) They limited the amount in company stock to 10%. I know some people who have all their retirement in the company stock. I think that this is a good thing.

I guessing you mean that it is good that you can't sink 100% of your retirement into the company ! There are thousands of Ford Salaried in this "leaky canoe" today. Luckily I was not.

Other retiree benefits are being chipped away. Ford Salaried used to get full medical, dental, vision, hearing, etc, etc, just like hour continues to get today.

As of Jan 2008, when you turn 65, you get $1800/year (plus same for spouse) to buy wathever "gap" coverage you can find. Nothing else, zip, zero, nada !

 

[Alan]

Ford Salaried now has 2 plans. The "old farts" still have DB, anyone hired after (IRRC) 2001 is DC.

My megacorp is the same. Being an "old fart" I get a full DB pension plus health insurance at 55. Should be approx $50k/year

My previous 2 megacorp ompanies are in exactly the same situation and being an "old fart" I'm grandfathered in, I am receiving one of my pensions now ($5k/year) but cannot get the other one until I'm 65 ( approx $12k/year and it is COLA'ed).

I think only about 25% of companies that used to offer DB plans still do, and that number is probably still falling.