Company canceling Pension plan. What can I expect?
The company announced Monday that they are canceling all active employee pensions effective immediately, except for the union employees, who's pensions will be canceled at a later date. They quit offering pensions to new hires about five years ago. I've been here for 12 years. Anyone gone through this?
Never been offered a pension. I am kind of a state employee. They get around it by making everyone temp full time. No benefits. Then wonder why the employs dont respect them or quit with little notice.
Of course of you work for the 4 year schools (I teach trades at the community college level) you can make it to "esteemed proffesor" and take a 1/4 mil a year for your trouble. And if showing up to teach is too much trouble then it is not expected. Just ask UNC chapel hill. Or the former chancelor at UNC Central.
Sounds like you are in the race to the bottom.
85,000 pension plans have been cancelled since 1985.
What you can expect is that you will have less money when you retire.
Start an IRA, if you havent already, and put the maximum in every year.
Did you pay into the pension program? If so you might have some leverage. The IRA's are a big scam as when you get to 70-1/2 you have to take minimum withdrawals and pay income tax on the amount. You have to withdraw the funds. The interest on any savings is so low that only the banks or financial companies are making any money. You cannot live on the interest anymore.
Is the current plan a defined benefit plan or a 401K plan? Makes a big difference. With 12 years you are vested regardless of the type of plan so you will get money out that can be rolled. If it is a defined benefit plan are they going to replace it with a 401K or have no plan at all?
Its happening everywhere, defined benifit plans are underfunded and companies are unwilling to make their obligated contributions. I,m currentlly a member of a plan that is being wound up as we speak, current retirees of that plan had their income reduced 30-42% as a result.
My wife went through this twice. First time, she got a lump sum payment (much less than what was owed to her). This time, with another company, she won't know until September. The company, still quite large and profitable, hopes to ditch the plan. It's still not clear if they will be legally held to their obligation. What I'd suggest is talking to some of your co-workers and see if you have any legal leverage in this situation.
Sure wish Mitt would tell us all how to put $100 million into an IRA, with annual contributions limited as they are.
Your immediate concern should be getting your 12 years contribution back.
Last edited by <jbc>; 08-09-2012 at 02:11 PM.
Reason: slight difference between canceling and stealing!
This could be a good news/bad news story. The bad news is, your pension is getting eliminated. The good news is, you only have twelve years at that employer, so you likely have time to recover. Better to get an unpleasant surprise now rather than when you are too old or otherwise unable to come up with an alternative. Also part of the good news, as previously stated, you are vested in the plan and should be getting some sort of compensation for what you have in the plan.
And now is a good time to get that lump sum, assuming of course that there is a good time. Why? Because interest rates are very LOW right now. Your vested plan, being, I assume, a defined benefit plan says that somone with your service record and at some age will receive $nnn per month. In order to spin off that amount every month, a certain amount of money needs to be invested. When interest rates are low, it takes a larger investment to generate the needed returns. If the plan is liquidated at a time when interest rates are low, that translates into a larger payout than when returns are high. (I know, I am GROSSLY oversimplifying here, to try to to get the general idea across.)
The pension was a part of your total compensation package. If it's eliminated, your compensation will go down. I hope you are getting a raise to offset this loss, but I am not holding my breath. If you do get a "raise" and/or if you get a lump sum distribution, DO NOT spend that money. Invest it wisely and carefully to assure your future as best you can.
But be careful!
If you get a lump sum, that is considered "before tax" money and if you take personal delivery of a check it is highly likely that you will end up owing taxes on the entire amount. The employer should send the money directly to a qualified account. If you don't have one, start one. Depending on your situaton, it may make sense to roll that money over into a Roth IRA. Yes, you will owe taxes on the money now, but never again, if the Washingtonians are to be believed. This is an especially good deal if you have a good number of years ahead of you to grow the money before you take any distributions. Plus, no required minmum distributions, etc.
If you have not done so, consult not one but two or three professional and respected financial advisors NOW before you do anything. This isn't an area where it is good to take chances or make assumptions.
And finally, it is my personal opinion that no one should put ANY money into a regular IRA or 401K, UNLESS your employer has a matching contribution plan AND has a good variety of low cost investment options and an easy way to roll the funds out of that account once they are vested. And even then, invest only as much as needed to capture the company's match. If the only investment option is the company's stock, stay away! Instead, max out what you can contribute to a Roth IRA or Roth 401K instead. Ordinary IRA's and 401K's are tax traps.
And last but certainly not least, don't take as fact ANYTHING I have told you, or that anyone else here tells you. If you find something here that interests you, use our suggestions as a basis for conducting YOUR OWN research with certified or licensed investment professionals. Act on knowledge not unqualified advice or anecdotes. And get more than one assessment from more than one professional and more than one company. I have heard many stories of people doing what they thought was the right thing and going to a financial professional and getting at best very BAD advice. In the end, it doesn't matter if the guy is a crook or just ill-informed if his advice costs you your investment dollars.
good luck and be careful,
And remember, if it sounds too good to be true....
Be careful of Financial Planners who are tied in with an investment company (which is why their advice is "free"). I regularly pay a CPA for an hour of discussion and advice. He always saves me a lot more than he costs me.
This is first-rate advice. I had been thinking of "fee-based" financial planners but forgot to say so.
Originally Posted by BobRenz
Assuming the OP has been a participant in the plan since he started he should be 100% vested in contributions from all sources.
If it is a defined benefit plan he will receive his pension when he reaches normal retirement age as it he quit at the time the plan ends. This means that it will not be adjusted upwards by future years of service or increases in compensation. The actuarial present value of this can and will be computed. It it is over a threshold generally set the by plan administrator he will get a regular payment when he reaches normal retirement age. It it is below the threshold he will get a lump sum payment equal to the actuarial computed present value. This present value is computed using the "expected" rate of return on the underlying assets" coupled with a mortality table. Current or future short term interest rates have little impact on this calculation as there is no expectation that the funds will be invested in such instruments and administrators have significant latitude in what expected rate of return to use. If the employer is replacing a defined benefit plan with a 401K plan he may have the option to roll the amount over into the new plan and there may be circumstances under which he may be required to do this..
If it is a 401k plan in addition to any contributions he made he is vested in any contributions the employer made. He will be able to roll this over into another qualifying plan such as a Rollover IRA or another 401K plan. I am not sure if he can directly roll it over into a Roth but he certainly can (in whole or in part) once it is in a Rollover IRA. Whether to do this or not really boils down to a determination as to what his tax rate will be in the future versus current taking into account the expected periodicity of the rollover or withdrawals.
I have a defined pension and a company match 401k. No company stock, as we were the victim of the largest (at the time) buyout of a publicly traded utility by a private holding company. Look up Energy Futures Holding or KKR. How someone that manages money so poorly got a hold of so much of it is beyond me. With only 12 years here, it isn't hurting me as much as some of the 30 year guys that look like they are about to suck off a 12 gauge.
Thanks for the advice
I'm sure it was their plan all along, in my case it was cerberus capital management. They borrowed to buy it then sold assets and paid themselves, ran the place deep into debt, on top of what they borrowed initially, and went bankrupt and walked away.
Originally Posted by i_r_machinist
Outch feel sorry for you man. Blood suckers, but your representatives are allowing the companies to exploit the pensions of their employees...so why wouldn't they right? Be stupid not to right?
I work full time for a company that I won't name here but they have been known to "bring good things to life". Last year they did away with any new union hires being able to participate in the defined pension program. Instead, they will be given a 401K alternative. For now, myself and everyone else are grandfathered in but I speculate that down the road they will try to freeze the pension program. It does seem to be the current trend in business now a days, even though the company hasn't contributed a dime to it since the late 80's and last I knew there was 60+billion in the fund (that is being conservative, I think). I may be wrong but if it happens, it will be one big cash grab for the company once the last person receives their benefit. I guess that is just the way it is, unfortunately.
I guess the only positive side of this is that it will motivate me to get off my ass and be aggressive on developing my shop. Many of the people here hadn't put much money in their 401ks. They had counted on their pensions. First line supervisors get 3X the pension of labor, and it goes up exponentially from there.
With nothing to hold them here, I'm certain that this place will loose some of the real talent that keeps this place running.
Retirement planning requires reading, reading and reading. I too had an inept financial advisor with a reputable bank here in canada. It took me 3 years to make up the losses with supposed advisor. In retrospect I can now see how it was not win / win as it should be. I now have my own discount investment account and manage it myself. It takes discipline and knowing's ones risk tolerence, which with me is not very high.
"A financial advisor is someone that invests your money till it's all gone"
I like seekingalpha.com for info. Also do your own DD, payed help can be good but ultimately
this is something you will have to do yourself, yes it can be VERY personal.
Pensions are becomeing a thing of the past. Companys are tired of funding peoples retirement. Some ways I can't blame them. Other ways if you worked there for many years it sucks because you had no other system for retirement. My generation was probley one of the few to start 401k's and IRA's and so on, because It was starting to be clear when we were young companys would not be able to pay for thier employes retirement. I started saving for retirement when I was 19 or 20. Right now the company I work for I got in just before they stopped doing a company retirement plan. They continue to add to the ones existing but nothing for the new hires.
I hope you have a back plan up in place, or get one soon.
When you say they are canceling do you mean they are no longer offering the program, or just plain ending it with no more payments going out? Wether you were already on it or not? The guys collecting now are they still getting a check or are they losing thier income?