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US Steel freezes pension plan
Old 08-22-2015, 05:48 PM   #1
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US Steel freezes pension plan

US Steel just froze its pension plan. I'm surprised by two things, one, that US Steel still exists, and two, that it's taken them this long.

I wonder what percentage of the F500 still offer traditional DB pensions?

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Old 08-22-2015, 06:34 PM   #2
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They're still in Gary, IN I believe but they've been closing down much of their production capacity for years. I'm surprised it took this long given all the issues they've been having...
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Old 08-22-2015, 06:51 PM   #3
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They're still around in Pittsburgh, too.


The Edgar Thomson Steel Works is a steel mill in the Pittsburgh area community of North Braddock, Pennsylvania, United States. It has been active since 1872. It is currently owned by U.S. Steel and is known as Mon Valley Works – Edgar Thomson Plant on its official website.


https://en.wikipedia.org/wiki/Edgar_Thomson_Steel_Works


I wonder if this affects folks already retired? Don't know any active employees.
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Old 08-22-2015, 07:42 PM   #4
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The freezing of the pension plan at my megacorp was my ticket out. Golden handcuffs no more.....

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Old 08-22-2015, 07:43 PM   #5
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What's a pension plan?
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Old 08-23-2015, 06:12 AM   #6
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A few years old, so presumably there are even fewer DB pensions now.

Quote:
By year-end 2013, only 24% of Fortune 500 companies offered any type of DB plan to new hires, down from 60% for the same selection of employers back in 1998.

Between 1998 and 2013, the percentage of employers offering traditional DB plans to newly hired employees declined from roughly half to 7%.

Retirement in Transition for the Fortune 500: 1998 to 2013 - Towers Watson

http://www.washingtonpost.com/news/g...-to-new-hires/
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Old 08-23-2015, 09:27 AM   #7
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Great links Midpack, thanks. Looks like majority of remaining S&P 500 DB plans are in "sheltered" industries insurance, utilities, and energy. I suspect they'll be squeezed next.

So "first wave" is companies transitioning from DB to DC.

Seems the "second wave" is companies getting existing DB liabilities off their books, either by:
1. Lump sum payments, or
2. Outsourcing pension obligation to insurance/annuity company

Anybody see any good articles/statistics/links on lump sum / outsourcing DB trends ?

My Megacorp froze DB years ago. I'm expecting lump sum or outsourcing to come next.

I guess the "outsourcing" can be a good thing if insurance company has more staying power than the company. My impression is that lump sums are rarely worth taking versus DB, unless company is shaky.
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Old 08-23-2015, 09:51 AM   #8
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Quote:
Originally Posted by Free To Canoe View Post
I wonder if this affects folks already retired? Don't know any active employees.
It shouldn't effect retirees at all. Freezing a pension plan usually means the company stops contributing to it. The value of the employee's pension account is still there, but it will never go up (other than the interest earned, which is negligible). So new employees don't get anything, but older employees still can draw the pension when they retire. Over time (as the retirees die off) it gets the company out of the pension business completely.
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Old 08-23-2015, 11:26 AM   #9
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What's a pension plan?
A sign of a flourishing society
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Old 08-23-2015, 11:27 AM   #10
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It shouldn't effect retirees at all. Freezing a pension plan usually means the company stops contributing to it.
not necessarily - it just stops future pension accruals - the ERISA funded status of a defined benefit plan doesn't change immediately when frozen
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Old 08-23-2015, 03:46 PM   #11
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What's a pension plan?
That is something given to "worthy" employees.

https://www.nerdwallet.com/blog/taxe...ation-pension/
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Old 08-24-2015, 09:13 AM   #12
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I guess the "outsourcing" can be a good thing if insurance company has more staying power than the company. My impression is that lump sums are rarely worth taking versus DB, unless company is shaky.
You need to know the maximum value in your state that the insurance pool will cover you for in case of a failure of one of the member insurers.

When the value of your pension exceeds this cap, any excess will likely be lost by you in case of the failure of your annuity company.

These state caps tend to be much lower (ie several hundred thousand $) then the protection offered by the PBGC which covers private pensions under current Federal law.

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Old 08-24-2015, 10:14 AM   #13
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I have 2 pensions. The first from a former employer is the typical kind which is the calculation of years service and percentage of pay. Lump sum is only available to those who are 55 and have 15 years of service. I had over 15 years of service but wasn't 55.


The pension where I currently work is called "cash balance" where I see the amount I would receive as an annuity at 65 but also the lump sum balance. Lump sum is available at termination of employment. The kicker with this one is the guaranteed minimum 5% return.
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Old 08-24-2015, 10:29 PM   #14
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I work at megacorp, they froze the pension three or four years ago. I have enough years in to get something, maybe $400/month starting at 55, others aren't so lucky. Most workers just shrugged, I tried to explain they just took a million dollar pay cut to no avail. "But they increased our 401k match 2%"
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Old 08-25-2015, 03:15 AM   #15
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My take: Pensions used to be an incentive for empl*yees to stay at the same company for a w*rking life time. They were relatively effective in this regard until the "model" changed. Both companies and empl*yees have moved to a much more fluid relationship. Hard to say how that all started, but it is now the norm. Empl*yees have little loyalty to any one company and companies aren't nearly as concerned with retaining empl*yees. I'm not smart enough to know all the reasons - whether there was ever even a conscious decision to head in such a direction. I'm simply describing the former and current situations - without editorial (as I see them.) While having a pension after 25 or 35 years is still a wonderful thing, most empl*yees now w*rk for (IIRC) 7 companies in a w*rking life. There is little chance a pension would w*rk in such a rapidly changing w*rk situation. It's not so much "too bad no one gets a pension anymore" as it is "too bad the model has changed." Just my musing and your view may differ since YMMV.
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Old 08-25-2015, 07:17 AM   #16
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I have 2 pensions. The first from a former employer is the typical kind which is the calculation of years service and percentage of pay. Lump sum is only available to those who are 55 and have 15 years of service. I had over 15 years of service but wasn't 55.


The pension where I currently work is called "cash balance" where I see the amount I would receive as an annuity at 65 but also the lump sum balance. Lump sum is available at termination of employment. The kicker with this one is the guaranteed minimum 5% return.
Your two pensions sound a lot like mine. My former company froze my pension back in 2002, as I did not come close to meeting the requirements (i.e. age and years of service) to be grandfathered into avoiding the freeze. The company began a cash balance plan which included an interest credit and pay credit. I had just begun working part-time in 2001 so my balance in this plan never grew very much in the 7 years I kept working.

However, the interest credit keeps the balance growing slowly every year even though I haven't worked there for 7 years. I was too young to cash it out when I ERed in 2008 (I was 45), but I can start withdrawing from it when I turn 55 (in 3 years). As for the traditional (frozen) pension, the amount of the monthly benefit I can start collecting when I turn 65 (the earliest I can start) never changes in the annual statements I get every summer. I could cash that out at 65 if I wanted to, I believe, but I am more concerned with the cash balance options because I wouldn't have to wait as long.
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Old 08-25-2015, 09:56 AM   #17
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My take: Pensions used to be an incentive for empl*yees to stay at the same company for a w*rking life time. They were relatively effective in this regard until the "model" changed. Both companies and empl*yees have moved to a much more fluid relationship. Hard to say how that all started, but it is now the norm. Empl*yees have little loyalty to any one company and companies aren't nearly as concerned with retaining empl*yees. I'm not smart enough to know all the reasons - whether there was ever even a conscious decision to head in such a direction. I'm simply describing the former and current situations - without editorial (as I see them.) While having a pension after 25 or 35 years is still a wonderful thing, most empl*yees now w*rk for (IIRC) 7 companies in a w*rking life. There is little chance a pension would w*rk in such a rapidly changing w*rk situation. It's not so much "too bad no one gets a pension anymore" as it is "too bad the model has changed." Just my musing and your view may differ since YMMV.
Pensions were indeed effective at retaining employees... ALL employees, including those the company didn't necessarily have an incentive to retain. That was the problem. Companies now focus their retention resources (using stock options, RSUs, bonuses, etc) to be more selective at retaining top performers who have the potential to "make a difference." The rest are free to come and go. This also made compensation more variable and tied to company performance. At my Megacorp the pension was phased out for new employees in the late 90s, at the exact same time that stock options started getting deployed much deeper into the organization (at all levels and functions).

There were also obvious demographic flaws in many DB pension assumptions. But those could have been re-calibrated over time. I think the desire to focus retention resources more selectively was the real reason for the demise of the traditional pension. I know that to be a fact at my Megacorp, which was near-brutal with pay differentiation based on performance criteria. Fortunately, I was grandfathered on the old pension and also earned stock grants and bonuses. So, despite a fairly stressful and competitive expectation of performance and results, I was a loyal Megacorp employee for 25 years.
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Old 08-25-2015, 10:06 AM   #18
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There were also obvious demographic flaws in many DB pension assumptions.
such as?
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Old 08-25-2015, 10:41 AM   #19
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ratio of workers to pensioners, life expectancy, birth rates
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Old 08-25-2015, 10:49 AM   #20
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the first and last aren't assumptions used to value private pension obligations - for ERISA valuations the second is statutory - for GAAP valuations most have moved to the 2014 2D mortality table or a variation thereof
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