Company eliminated the Pension

[renferme]

The company I retired from just gave notice that it will eliminate the defined non-contributory pension as of 12/31/2005.
No big deal to me, as I will continue to draw my pension, but a big deal for my wife and son, who continue to work for the company.
The pensions that they have earned to date will be frozen; they can begin to receive the "frozen" pensions at age 55 or later if they prefer. By frozen, I mean they will never grow after 12/31/2005. In other words, a pension that is currently worth $400/month now, will be worth $400 a month 10 years from now, etc.
The pension will be replaced by additional contributions to the 401k plan.
Employees will have money put into the 401k anywhere from 5 to 15 percent of their salary based on age and years of service.
So,,, my questions is:.
What does everyone think about this,,,good or bad,,, good or bad for whom?

 

[wabmester]

Good move for the company. I'm sure more will do this.

Overall, I'm not sure it is good or bad for the economy. It just shifts the retirement burden to the individual, and when they fail to handle the burden, it'll shift to the government. Corporate profits will go up. But so will taxes.

 

[SteveR]

There is no Good of Bad, it just is what it is.

My current company has no pension program.  My former company did and I am covered (at a much reduced payment) as I ER's at 50 from them.  Many companies no longer have pension programs or are finding ways to get rid of them or dump them on the US Gov. so all us nice taxpayers can foot the bill.  

My former company spun off part of it into a new company.  The new compnany has no pension.  The former employees that are now in the new company had their pension frozen too and many are not too happy about it.  I can't blame them.  I am not too happy about my ex-wife taking half mine now either.  

 

[obryanjf]

My company did the same thing a year ago if youchose to.  I chose to switch.  My pension of 16 years will continue to grow with salary but not with years of service.  In effect I have some inflation protection on the DB part.  Should be about 20,000/year in real terms (assuming my salary grows with inflation) at 65.  I am 40 now.  When I quit, get fired, layed off, etc. it will start to decrease in real terms.  For the privelidge of this, they add 1% to the previous 3% to 401K base plus 5% to 401K, the 5% is due to years of service.  This is a total of 9% they put in 401K, I put in 16%.

I think it is a good thing for me.  When they had the calculators available and when I ran my own numbers, it was pretty much a wash if I continued to work to 65.  I plan on leaving much sooner and prefer the cash now to invest the way I want, and have access to it when I chose to retire.  I wish they had done it years ago.  I've invested for years and feel confident to not lose it all.  BTW, most of the co. population chose to stay in the old DB plan rather than switch.

I feel pretty good about where were are in relation to the general public.  However, someone always pops on this board and says they at 35 and have 1.8 mil or something like that.   My take is the younger you are and 'if you are able to invest prudently', the better off you are with the beefer 401K.  The older you are, the worse off you will be with the switch.  

job

 

[Spanky]

1. Good for the companies since they do not have to fund it and thus more profits for the stakeholders.
2. Good for the government since they will pay more tax as a result of increased profit.
3. Bad for the government if they have to fund retirees with inadequate saving.

I think the governemt should follow suit. It will be good for us since they may be able to lower taxes if they do not have to fund pensions.

 

[yakers]

I think the governemt should follow suit. It will be good for us since they may be able to lower taxes if they do not have to fund pensions.

Federal Govt switched from a DB to a DC plan in about 1986 (someone will remember the date) fron CSRS to FERS. Someone with foresight (?) knew that this would be a big issue along SS and national debt issues and arranged the switch before the whatever hit the fan. I'm happily under the old system. The new system is actually better if you max out contributions but if folks don't they will be in trouble as they probably would not have been under the old system.
Now state & local govt is another issue. Maybe it is time to switch them over. But the Fed Govt is out of this discussion.

 

[Michael]

In other words, a pension that is currently worth $400/month now, will be worth $400 a month 10 years from now...

Inflation will make this almost worthless before a young person collects the first dime. Someone with 20 years in the old plan, and only 40 years old, will get hit really hard by this. Especially if something happens that makes it hard for them to work full time in the future. They wasted their prime years for nothing, and have to start all over again from scratch.

 

[Spanky]

Federal Employees Retirement System (FERS) is still very attractive in comparision to those of the private sector.

According to the following link:
http://www.opm.gov/fers_election/fersh/h_fers3.htm

FERS has three components:
1. Basic Benefit (cost of living adjusted)
benefit = one percent of the highest three year average pay for every year of service.
cost = 0.8% of salary

2. Social Security (cost of living adjusted)
cost = 7% of pay

3. Thrift Savings Plan (similar to 401k but more generous)
Employee Gov. Contribution
Contribution Contribution Total
0% 1% 1%
1% 2% 3%
2% 3% 5%
3% 4% 7%
4% 4.5% 8.5%
5% 5.0% 10%
6-10% 5.0% 5% + percentage contributed

In addition, a federal employee can keep Federal Employees Health Benefits and Federal Employees' Group Life Insurance coverages.

Most companies offer only 401K plan (social security is mandatory). The contribution match is from 75% to 100% but not to exceed 6% of pay. The company for which I work matches the contribution in company stocks that cannot be converted or transferred unless you leave the company. In comparison, the FERS is better since it has an extra Basic Benefit plan and health and insurance benefits not provided by most companies.

 

[yakers]

Well I said the FERS system was theoretically better than CSSRS but only if the employee contributes. If not the employer (the govt) "saves" money and the employee will have not much of a retirement. Maybe an overall better program than in industry but I wonder what figures there are for employee contributions in industry and in FERS. I know only a few employees who max out their contributions and are retirement savvy. Under the old DB program it was easier to muddle through.

 

[bosco]

The company I retired from just gave notice that it will eliminate the defined non-contributory pension as of 12/31/2005.

The pensions that they have earned to date will be frozen; they can begin to receive the "frozen" pensions at age 55 or later if they prefer. By frozen, I mean they will never grow after 12/31/2005. In other words, a pension that is currently worth $400/month now, will be worth $400 a month 10 years from now, etc.

What does everyone think about this,,,good or bad,,, good or bad for whom?

All hail our corporate masters!!! We serve you, oh masters!!! We willingly allow our "government" to champion your interests. Although they allow you to f*** us, we continue to vote them into office!!!

 

[Mr._johngalt]

All hail our corporate masters!!!  We serve you, oh masters!!!  We willingly allow our "government" to champion your interests.  Although they allow you to f*** us, we continue to vote them into office!!!

Not me. Have not voted in years. No plans to resume.

JG

 

[bow-tie]

The company I retired from just gave notice that it will eliminate the defined non-contributory pension as of 12/31/2005...

What does everyone think about this,,,good or bad,,, good or bad for whom?

Hey Bennevis, I hear ya.  The place I sell my time to declared their pension ka-put in Oct. '06, at which time they will increase their 401k match based upon your age and time with the company.  Pretty sure the org. gets the better end of that deal... 

It will be interesting to see the personnel changes over the next 12-18 months as people realize staying past next Oct. '06 will not increase their pension payout.  I'm guessing it will be a large number of employees with many years of service.  A fair amount of dead weight IMO, but not all...some special expertise walking out too, I believe. 

 

[renferme]

bow-tie,
There could be a lot that quit, but, the job market in Pittsburgh is not very good.
And, for whatever reason, native Pittsburghers do not want to leave town.
That's just the way we are, I guess.
.
I wonder if any employees will try the law suit route ?

 

[Spanky]

My point is that FERS is better than the retirement program of a typical company. It is not a comparision between CSSRS and FERS. Either plan is superior to most plans offered by the private sector and is a burden to the government. Even if no contribution is made under FERS, one still receive the Basic Benefit at a negligible cost of 0.8% of pay, one percent of saving plan, social security, medical and insurance benefits. For the same scenario under a typical corporate plan, one only gets social security. In short, the government's plan is still very generous.

 

[Delawaredave]

Can you mention the company name ? I grew up in Pittsburgh - curious.

So eixsting employees have their pension "capped" - I assume the pension rate times the current years of service -- whatever dollars/month that get -- that's fixed ?

No adjustment for inflation ? No recognition of additional years of service or increased pay ?

That sucks for employees.

I've been trying to follow these "Defined Benefit Pension Discontinuations" - I am convinced that all companies will get rid of them.

I have 23 years with a big company who has DB plan - wife with same comany and has 27 years.

I keep thinking we're going to "get close then get screwed" when they discontinue the program.

 

[tryan]

Where I work they froze the pension 2 years ago and doubled the 401k match (from 25% to 50% match on the first 6% contribution). 3% "inflation" increases will be made to the pension for each year worked after the freeze. A co-worker - an analyst - studied how this affected different age employees and determined:

Employees age:

60+ no affect since they maxed out the pension benefit; too little time left to benefit from the 401k.

50-59 you got screwed; can't max out the pension and not enough time left to benefit from the 401k match.

40-49 is a push (break even).

less than 40 big winners as the 401k outperforms the pension.

Assumptions were 8% market returns on the 401k.

 

[Spanky]

I have 23 years with a big company who has DB plan - wife with same comany and has 27 years.

My wife had worked a company for 26 years before she was laid off last year. The company did not have any defined pension plan other than 401K. It seems that DB will become history soon. The only decent retirement plans remaining are those of government (federal, state and local).

 

[SteveR]

The only decent retirement plans remaining are those of government (federal, state and local).

I think this says a lot.


Enough said.