US Steel freezes pension plan

[Olbidness]

I see the trend toward freezing of pensions as the shifting of risk from the company to the employee. People living longer creates a change in the longevity risk the administrators have to address. The low interest rate of bonds as a stabilizer against the stock market volatility makes the company obligation more open ended.

 

[fishndad42]

My impression is that lump sums are rarely worth taking versus DB, unless company is shaky.

That seems to be the feeling of many of my friends, but with a likely short lifespan for both DW and I, we've been looking at lump sum as a way to have an inheritance for our offspring.

I've run the numbers through FireCalc both ways, and was surprised at the result. Staying with a 30 year planning horizon (hey, they could find a cure someday soon!) I found that the pension plus current portfolio left me with $93K and the lump sum plus portfolio would be at $340K after 30 years.

Seems lump sum has a significant chance to outperform a pension (for me). I think it is because the pension is non-cola.

I'm leaning heavily toward lump sum, but of course I have different circumstances than some. I've got 1 year, 4 months and 5 days to continue sharpening the pencil!

 

[NoiseBoy]

I see the trend toward freezing of pensions as the shifting of risk from the company to the employee. People living longer creates a change in the longevity risk the administrators have to address. The low interest rate of bonds as a stabilizer against the stock market volatility makes the company obligation more open ended.

At my megacorp, the pension changes happened in two stages. First, they froze the plan to new hires and gave current employees an option to stay in the traditional DB plan, or receive a lump sum and transition to 100% 401k for the future. The only way leaving made financial sense was if you believed that you were very likely to leave the company before retiring. Otherwise, all the calculators showed that we were much better off staying in the DB plan. I elected to stay.

About 5 years later (after 2009), they decided that freezing the plan to new participants wasn't good enough, so they kicked out any current employee who was less than 40 years old AND set a future date that the plan would be frozen for all participants. I made the cut and they'll freeze the plan the year I turn 55, so they set a nice stretch goal for me

I believe my megacorp made these changes for three main reasons. First of all, offering a good DB pension plan became less important for recruiting new employees as the number of companies with DB plans declined. That allowed them to make the first change to close the plan to new participants. The second, and hopefully last, change they made because the accountants wanted it. Shifting the majority of the employees to a pure DC plan makes it much easier for the company to predict their future retirement obligations. In fact, they now vest the company match immediately, and kick in their extra bits at the end of the year, so it's all neat and tidy from an annual report perspective.

The final reason is easy; the DB plan costs more than the 401k, so cutting it saves the company money. By "costs more" I mean that I think the overall costs to the company per employee were higher than what they replaced it with in the 401k. I think the two big stock drops and the low bond rates contributed in no small way to their decision to essentially end our DB plan.