Pension Freeze

[tmm99]

https://news.fidelity.com/news/arti...es/pension-frozen&topic=saving-for-retirement

You've been looking forward to retirement — and the steady income your employer was supposed to provide — only to learn that your company has frozen its pension plan. Now what?
You're joining a well-populated club: Overall, about a fifth of workers in private-sector pension plans — 3.3 million people — have been affected by a "freeze," or suspension of benefits, according to the Bureau of Labor Statistics.

Kraft, HSBC and Time Warner (the parent company of CNNMoney.com and Money Magazine) are among the large employers to have frozen plans this year, following 190 Fortune 1,000 companies in 2009.

Industries such as aerospace, defense, and natural resources — along with state and local governments — are likely to offer defined-benefit plans for years to come, experts say.
But the firms that have frozen plans aren't likely to thaw them. So if your pension is iced over or at risk, you'll need to adjust your retirement strategy ASAP.

 

[bbbamI]

My old Megacorp did this years ago however the balance continued to grow due to investment interest.

 

[ziggy29]

I need to stop reading articles like this. They make my blood boil.

 

[Amethyst]

Husband's Federal pension was frozen this year, and no doubt will be frozen in 2011 due to "no inflation."

The way we see it, a frozen pension beats a shrunken one.

Amethyst

 

[KM]

DHs company made changes a few years back, offering to let people choose between keeping their Defined Benefit Plan or switch to a Defined Contribution Plan. My theory is whenever a company offers to let you change to something else, there is probably more in it for them that for you...so we stayed with the DB plan and am glad we did. This year they announced everyone would be moved to the DC plan by a certain year (2014?). Hopefully we will be retired by then...so it will be irrelevent.

This year my company announced a change to my plan. They are significantly reducing the % they use to calculate our final benefit. But the are also reducing the % of our SS that they use to offset our final benefit....acknowledging that SS may not be of much help for retirees in the future. It still results in a reduced benefit - but they could have left the SS offset the same. Additionally, whatever years we have already worked will be calculated at the old % and only future years at the new %. The pension is based on our last 5 of 10 highest years salary - so when we retire - asssuming our income has increased between now and then - they will also go back and recalculate both pieces (old % years and new % years) using the higher final salary. Ultimately, the more years we have in and/or the closer we are to retirement, the less of an impact this will have on our pension.

There was a lot of complaining when the change was first announced - but considering everything I have been reading about other pension plan changes or just flat out disappearing - I think we have been very fortunate.

 

[ziggy29]

Husband's Federal pension was frozen this year, and no doubt will be frozen in 2011 due to "no inflation."

When you say "frozen" here, you really mean "no COLA," yes?

To us private sector types, "frozen" means something entirely different and a heck of a lot worse...

 

[clifp]

When you say "frozen" here, you really mean "no COLA," yes?

To us private sector types, "frozen" means something entirely different and a heck of a lot worse...

There hasn't been essentially any inflation in the last couple of years so I would hope retirees wouldn't be expecting any type of raise. 10% of the working population has a seen 100% paycut and a very high percentage has seen furloughs, pay cuts and/or their hours cut.

 

[Bestwifeever]

Yeah, frozen means something a lot different (and usually worse) other than no COLA.

 

[ESRwannabe]

I am vested in a pension and I suppose it is a good one, but my plans don't really factor it in. I want to reach a state of near FI by the time I am 40 based on my taxable investments alone. The 401k, roth ira, social security, and pension are things I won't have access to until 60+. So, I really don't even think about them.

The major benefit I have gotten from the pension so far is that it has given me a justification for only putting enough into the 401k to get the match. I am not maxing it out, i.e. $15k a year or whatever the limit is. This has given me more money for my taxable investments.

I am pretty sure that when I get to 60+ I won't even need the pension, ss, or retirement accounts. My taxable accounts will bring in more money than I live on by then. If I had a house paid for then I would only need about $20k or so a year to maintain my current standard of living.

 

[IndependentlyPoor]

Back in naught four, the local VP called the R&D staff together and announced that pensions were frozen, as in no more accrual. This was right after introducing the topic by stating that the company had "too many senior engineers".

They had one fewer that December.

 

[REWahoo]

I am pretty sure that when I get to 60+ I won't even need the pension, ss, or retirement accounts. My taxable accounts will bring in more money than I live on by then. If I had a house paid for then I would only need about $20k or so a year to maintain my current standard of living.

A lot, and I do mean a lot, can change in twenty years. By then, $60 - or $80 - might be the new $20.

 

[ziggy29]

A lot, and I do mean a lot, can change in twenty years. By then, $60 - or $80 - might be the new $20.

Like the $630 a month I'll get from my frozen Megacorp pension in 2030.

 

[ESRwannabe]

A lot, and I do mean a lot, can change in twenty years. By then, $60 - or $80 - might be the new $20.

No worries... I invest in stocks so that I can [-]lose money[/-] gain money faster than inflation.

 

[fisherman]

I left Mega Cr*p in late 2007 with a vested pension that starts when I reach 55. DW also has a vested pension that can start at 55. Last month I got a letter from the pension fund stating that the pension would be frozen and any future years service would not count. I could hardly stop laughing as this is one item I felt I left on the table by ESRing three years ago. As bad as it is for current worker bees at Mega Cr*p it really validated the decision to ESR. We have even started our on pension through our S-corp which helps out greatly on the taxes.

 

[walkinwood]

I keep wondering about the viability of pensions - government & private alike. What's to stop them from changing terms down the road? Given the underfunding of the pension system, something has to give. I don't think SS is the only program in danger.

I don't have a pension and in spite of the uncertainty, I wish I did.

 

[ziggy29]

I don't have a pension and in spite of the uncertainty, I wish I did.

Yeah, it's not like we knew what the 21st century was going to be like for the private sector when we made our career choices 20-30 years ago, and it's not like we have a mulligan...

 

[Ken11]

My freeze was coming end of 2012.
That's one reason I just ESRed.

To Clarify:- the "freeze" means that my formula-based/salary- based defined benefits retirement package gets converted to a lump sum that then draws very low interest going forward.

In this case the opportunity cost associated with not investing that retirement sum becomes significant.

 

[check6]

Mine was frozen 5 years ago using the best 5/10 years. Unfortunately during those same years pay was cut by +40%. When I retired in '08, the pay rate was the same as it was in '89. The CEO retired the same year with an $8 million lump sum.

 

[HFWR]

Mine was frozen at some paltry sum when laid off the first time in '98. The alternative, a larger 401k match, is better over the long haul, but still...

 

[ziggy29]

Mine was frozen at some paltry sum when laid off the first time in '98. The alternative, a larger 401k match, is better over the long haul, but still...

The alternative is better if the market cooperates. The more and more we're looking like Japan, the less and less that seems likely to me. The 401K generation is screwed, at least the part hoping to retire within the next 10-15 years. Absolutely no one seems to care to address the "coming retirement crisis" when it comes to tanking personal investments among private sector employees making it harder and harder for them to retire, let alone early.

 

[HFWR]

...tanking personal investments among private sector employees making it harder and harder for them to retire, let alone early.

I resemble that remark...

 

[ronocnikral]

What's to stop them from changing terms down the road?

this why 99% of the people i w*rk with who retire take the lump sum from our DB plan.

i never realized how good my benefits at w*rk are. We still have a defined benefit plan which has some health component to it and a defined contribution plan which they match 4% to 1%, up to 8% (100% vesting outright). i'm now vested in the DB plan, but plan on seeing none of it in retirement (same with SS). i will consider anything outside my retirement account lagniappe (french icing, if you will).

 

[akck]

I keep wondering about the viability of pensions - government & private alike. What's to stop them from changing terms down the road? Given the underfunding of the pension system, something has to give. I don't think SS is the only program in danger.

I don't have a pension and in spite of the uncertainty, I wish I did.

With many state pensions the terms can't change. Some of it is written into state constitutions, making it nearly impossible to change. What some states have done is to create a tiered system with new hires falling under a defined contribution plan and less medical benefits.

 

[walkinwood]

Payback Time - In Budget Crisis, States Take Aim at Pension Costs - NYTimes.com

This article talks about CO reducing benefits for existing retirees. Also says that there will be court challenges.