When a company decides to shut down or change its pension plan, employees need to determine how it's going to affect them. The most common scenario...
When a company decides to shut down or change its pension plan, employees need to determine how it’s going to affect them.
The most common scenario these days is for a company to stop offering a defined-benefit plan, which promised workers a set amount of money each month in retirement, and replace it with a 401(k) account, which requires employee contributions. Companies often match all or part of employees’ contributions.
William Arnone, a partner in the human capital practice of Ernst & Young, noted that some companies offer workers 40 and older a choice of staying in the old plan or shifting to the new one. Employees should weigh these issues:
What rate of return can I get on the 401(k), and how would that compare with how the pension would grow?
Most Read Stories
- This season, Seahawks have crossed the line from brash to just plain unlikable | Matt Calkins
- Christopher Monfort, killer of Seattle police officer, found dead in prison cell
- How Seattle Mayor Murray’s plan to help homeless living in RVs unraveled VIEW
- Why are home prices so high? Seattle has 2nd-lowest rate of homes for sale in U.S.
- UW star quarterback Jake Browning has surgery on throwing shoulder
Am I a do-it-yourselfer or a you-do-it-for-me kind of person? With defined-benefit plans, the employer does the work; with a 401(k), the employee must make savings and investment decisions.
How long am I going to work for this company? If only a few years, it might be better to opt for 401(k) savings, which employees can take along to new jobs.
Another alternative is that a company can modify its defined-benefit plan, perhaps moving to a “hybrid” design such as a cash-balance plan.
Lynn Dudley, an attorney with the American Benefits Council trade group in Washington, D.C., suggests workers contact their company’s human-resources department with these questions:
What is going to happen with the money accumulated in the old plan?
Whom do I talk to if I have further questions about this money?
How will the plan operate?
Can you give me a model of what a person in my income bracket will accumulate under the new plan?