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...

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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?

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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?