Be On The Lookout
A defined benefit pension plan, where a company promises to pay a retiree a set amount each month during retirement, has been a staple in many people’s retirement plan for a long time. However, things have changed a lot lately for these defined benefit pension plans. If you read the book Jeremy and I wrote – “Solving the Retirement Puzzle with 4 Easy Pieces” – you remember that the first chapter was entitled “Where Have All the Pensions Gone?”
Do you now or have you ever participated in a defined benefit pension plan? Are you retired and receiving a monthly pension check? If you are one of the estimated 40 million Americans who can answer yes to either question, be on the lookout for an e-mail or letter announcing important changes to your benefits.
Because of the accounting, risk and expenses of these plans, as well as some changes in laws, many companies have been freezing their defined benefit pension plans. They are making a move to 401(k) plans that not only cost them much less, but also transfers all the investment risk to the worker. In fact, many companies have begun doing this over the last couple of years, including General Motors, American Airlines, Bank of America, Sysco and NBC Universal to name a few.
When a company makes a move to freeze or terminate their pension plan, they have to notify all of their current and past employees who will be affected and have a vested contractual benefit owed to them from the plan. There are three types of changes you might be confronted with.
The first is a notification of intent to freeze the plan. Workers currently covered by the plan are told they won’t accrue any additional pension benefits.
The second is an offer from the company to pay current retirees and former employees lump sums in lieu of promised monthly pension payments.
The third is a notification that the company is terminating the pension plan and transferring the obligation to an insurance company who will then continue the payments.
When receiving a notification and options regarding this (and chances are you will), you have to take it very seriously and give it much thought. There are many factors to consider before making this very important decision.
To learn more about these options and the many factors to consider, tune into “Your Retirement Quarterback” on 990am this weekend. The show airs on Sundays at noon on WNTP 990am and online at www.newstalk990.com. You can also obtain this information and the independent advice for your specific situation by contacting me at Franklin Retirement Solutions at 215-657-9200.