Call me crazy....

[Deleted]

But I think my employer is going to get rid of pension plan.

Since I started working there, every executive that I have met kept on pushing the 401K on us, you need to contribute into the 401K, and you have to, blah, blah blah.

I can say they have spent a small fortune trying to recruit more employees to contribute to the 401K plan.

At first (been there only 2 years this January 17th) I thought they were being responsible and I was impressed.
But after 2 years and they are getting more and more aggressive about it, I am getting a bit suspicious.

Like yesterday one of the executives asked one of my co-workers that have been with the company for 19 years is she is contributing to the 401K and she said yes. His answer was: Good, because as part of my job I would have to scold you if you were not.

So it is:
a) Them being responsible
b) Them planning to cut off the pension eventually
c) Because the higher ups (executives) cannot max their 401K due to the fact a lot of the workers are counting on their pensions so not contributing to 401K.

I feel it is c) than b). You?

[Deleted]

Jan 13, 2011 8:26:30 GMT -5 TheHaitian said:

But I think my employer is going to get rid of pension plan.

I'd call you crazy if you said your employer was planning on keeping their pension plan for the long term.

[BeenThere...DoneThat...]

...yeah... you may be behind the times (pensions are going, going, gone!) but you're not crazy...

ETA: I'm thinking most already-promised pensions will also be gone by the time they're tapped...

[MN-Investor]

So many companies have gotten rid of their defined benefits plans, that it would be irresponsible for management to not consider it. It's an expense that companies they compete with no longer have, therefore potentially making your company less competitive in the market.

A lot of employees like 401(k) plans. With defined benefit plans, there's usually a time before you're fully vested. With 401(k) plans, you can always take what you have put into the plan with you if you leave.

The one thing I would do is check the funds available within the 401(k) plan. If there are not a good mix of alternatives available, I would bring that up to an executive pressing the 401(k) issue. It's sounds like they want you to buy in, so if there's an issue now, speak up.

[Deleted]

To answer your question, there are lots of reasons that executives want their employees to contribute to the 401k plan.

It saves the company money by reducing their payroll tax liability.

It reduces the 401k plan operating costs because the more money the company has in the plan, the lower the expense ratio of administering the plan.

If the highly compensated employees are not allowed to max out their contributions, then it helps them do so, although there are others ways to accomplish that as well.

It is a good metric. Companies like to say they have a high percentage of 401k participation. It makes them look good.

[dancinmama]

DH's company discontinued their pension plan for new hires in 2007. Unless you hired on before the end of 2006, you will not be a part of the defined benefit plan. His company is a Fortune 500 company that employs over 140,000 worldwide.

[Urban Chicago]

Yeah, I would not be counting on a pension lasting forever. You'll probably get what you've already earned, but they'll probably freeze and close the plan the first chance they get.

[The J]

I'm with everyone else. They're going to most likely freeze the pension at some point, and just do the 401(k) for the future.

[thyme4change]

You are CRAZY!

No employer would cancel a pension plan. I mean, really, point to one single employer that has done that over the past 20 years.

[Wisconsin Beth]

I like d. All of the above although I do think C is highly likely.

Maybe they know that they're underfunding their pension obligations and are trying to ease their minds about it?

[hsclassic]

Companies have been eliminating their defined benefits pension programs for years so they could eliminate the annual pension obligation they owed. In 2011, I'm surprised to hear any commercial business still offers a defined benefits pension program. Max out the 401(k) now because, in some manner, your pension program is likely to be frozen (e.g. no more growth of your possible pension payment).

Call me pessimistic (I prefer realistic), but at age 48 with a pension that was frozen a few years ago, while conventional wisdom would tell me to wait until age 65 to start taking disbursements, I'll start as soon as I can because I do expect the pension fund to exhaust its resources long before I leave this earth.

Just look at what the states and local municipalities are talking about now - their retiree obligations are significant burden on their budgets, and many are looking at significant changes to reduce the growth of this obligation by replacing defined benefits pensions with alternatives (e.g. 457 plans). IMO this trend to eliminate the defined pension program will continue through commercial and government organizations.

So, OP, if you haven't started maxing out your 401(k) contributions yet (and, of course, maxing your Roth IRA contribution as well), hopefully the "notice" from your employer plus the feedback from this thread will encourage you to do so.

[hsclassic]

thyme4change - with the bankruptcies of traditional manufacturers (e.g. Delphi), many companies had their pension programs taken over by the Federal Pension Program (sorry, can't remember their exact name - the eqivalent of the FDIC for pensions). In those cases, the pension payments to current retirees were often reduced. (My uncle is a victim of this exact situation.) In bankruptcy, it may be possible for employers to cancel a pension plan.

[Wisconsin Beth]

Just look at what the states and local municipalities are talking about now - their retiree obligations are significant burden on their budgets, and many are looking at significant changes to reduce the growth of this obligation by replacing defined benefits pensions with alternatives (e.g. 457 plans). IMO this trend to eliminate the defined pension program will continue through commercial and government organizations.

We started 457 plans in Oct. 1974, per the current provider's website, which jives with anecdotal stories I've heard from coworkers. The pension plan is fairly healthy and fully funded at this time. So while I agree with hsclassic's statement in general, you need to look at the specifics of your employer too.

[reader79]

My pension was frozen in 2009. I was kind of expecting it. But I have years to make up for the loss. My mom, however, is 58 and trying to get another four years in her city job to max out her pension. Between that and SS for both of them, that is all my parents have for retirement. They have this blind faith that once the checks start coming that they won't ever stop or decrease. We live in New York State, and I really don't think the budget can guarantee that for 20+ years of retirement.

[thyme4change]

My husband technically has a pension, but we haven't included that in any of our calculations. First, he would have to work his current job for another couple of decades, and who knows if that will happen. Second, it might go belly up. If he does end up getting it, in any form - it will be nice bonus money that we can use for French wine and cheeses.

[Wisconsin Beth]

Jan 13, 2011 11:37:30 GMT -5 thyme4change said:

My husband technically has a pension, but we haven't included that in any of our calculations. First, he would have to work his current job for another couple of decades, and who knows if that will happen. Second, it might go belly up. If he does end up getting it, in any form - it will be nice bonus money that we can use for French wine and cheeses.

I find it hard to add a pension to most of the retirement calculators out there. The one I was playing around with recently asked if I was eligible for a pension then arbitrarily decided it was going to be about $14K a year. And there wasn't an option to change it.

[BeenThere...DoneThat...]

<<< No employer would cancel a pension plan. I mean, really, point to one single employer that has done that over the past 20 years. >>>

...I think the pertinent question is to think of an employer who would do that in the next 20yrs...

[Deleted]

Sooo.... not to hijack the thread or anything, but are you all saying not to rely on getting a pension? I work for the state government and plan on retiring and collecting my pension in about 30 years. Yes, I also have a Roth IRA, but I'm not putting much in it at this point in time because I'm trying to aggressively pay off my debt (should be paid off around this time next year). After the debt is paid off, I want to put some more into an emergency fund and then concentrate on retirement. Should I have another back-up plan besides my Roth? What is this 457 I keep reading about? Now I'm scared for my pension... I know that they have recently changed our pension rules, so to speak, for new hires (vested after 10 years instead of 5, retirement eligible at 65 instead of 60, etc.) I've got three years of service, so I'll be vested in two years.

Cripes - with all this worrying I've been doing, I won't make it to retirement anyway.

[dancinmama]

I am very thankful that DH's company has only discontinued the defined benefit plan for new hires. There has been no talk of freezing the plan, but that would not effect us anyway. The company is extremely unlikely to go bankrupt, so I am not too concerned about that.

I think we are EXTREMELY fortunate in that his company offered both a 401k and a pension since he started working for them AND he has stayed with them for over 30 years so that his pension will be a decent amount annually - although it would never compare to someone who had worked for a municipality for all that time.

[Deleted]

Thanks guys, appreciate the answers.

I was not counting on it to begin with (thank you Your Money): contributing 20% to my 401K and trying to max ROTH IRA this year.

But my job hires over 25,000 employees of which only 14,000 or so (per the last filling of the 401k funds) contribute to the 401K and that is minimal contributions.

Some don't even contribute enough to get the company match and it is for them I am worried. That would truly suck.

[BeenThere...DoneThat...]

<<< Some don't even contribute enough to get the company match >>>

...don't even GET me started... we've got a mooch family member who makes 3x what we do combined but still wants us to treat for dinner, and he talks about how he so very much wants to start saving one day... and continually asks me about 401Ks and how they work, and I'm just, well...

[dancinmama]

Jan 13, 2011 12:44:16 GMT -5 TheHaitian said:

Thanks guys, appreciate the answers.

I was not counting on it to begin with (thank you Your Money): contributing 20% to my 401K and trying to max ROTH IRA this year.

But my job hires over 25,000 employees of which only 14,000 or so (per the last filling of the 401k funds) contribute to the 401K and that is minimal contributions.

Some don't even contribute enough to get the company match and it is for them I am worried. That would truly suck.

Unfortunately, contributing to a 401k is something that people tend to "put off" thinking that they need to take care of other obligations/goals first (i.e. paying off debt, saving for a home, etc.).

The thing is, that starting EARLY is the key and though the initial plunge might hurt a little, you get used to the decrease in pay really quickly and adjust your lifestyle accordingly.

[Deleted]

Jan 13, 2011 12:56:10 GMT -5 dancinmama said:

Jan 13, 2011 12:44:16 GMT -5 TheHaitian said:

Thanks guys, appreciate the answers.

I was not counting on it to begin with (thank you Your Money): contributing 20% to my 401K and trying to max ROTH IRA this year.

But my job hires over 25,000 employees of which only 14,000 or so (per the last filling of the 401k funds) contribute to the 401K and that is minimal contributions.

Some don't even contribute enough to get the company match and it is for them I am worried. That would truly suck.

Unfortunately, contributing to a 401k is something that people tend to "put off" thinking that they need to take care of other obligations/goals first (i.e. paying off debt, saving for a home, etc.).

The thing is, that starting EARLY is the key and though the initial plunge might hurt a little, you get used to the decrease in pay really quickly and adjust your lifestyle accordingly.

AMEN!

[Wisconsin Beth]

Jan 13, 2011 12:28:44 GMT -5 @vsnizzle said:

Sooo.... not to hijack the thread or anything, but are you all saying not to rely on getting a pension? I work for the state government and plan on retiring and collecting my pension in about 30 years. Yes, I also have a Roth IRA, but I'm not putting much in it at this point in time because I'm trying to aggressively pay off my debt (should be paid off around this time next year). After the debt is paid off, I want to put some more into an emergency fund and then concentrate on retirement. Should I have another back-up plan besides my Roth? What is this 457 I keep reading about? Now I'm scared for my pension... I know that they have recently changed our pension rules, so to speak, for new hires (vested after 10 years instead of 5, retirement eligible at 65 instead of 60, etc.) I've got three years of service, so I'll be vested in two years.

Cripes - with all this worrying I've been doing, I won't make it to retirement anyway.

Non-profits (think hospitals and local/state/federal gov't) aren't allowed to offer 401K. My understanding the match on a 401K is basically a type of profit-sharing. Non-profits and the gov't aren't supposed to make a profit. Therefore, non-profits get to administer to 403s and gov't gets 457s. My DH used to recordkeep retirement plans - mainly 401s. Once he looked over my 457, he said the rules were very very similar to his own 401K.

I think there are a couple of sub-types of 457s and 403s but don't know that as fact.

Being a state employee means that your pension data is subject to open records law. So I'm sure the media has done stories on the health of your state plan. I'd google it and see what comes up.

I work for my local gov't. I receive a pension plan statement every year that goes over the health of the plan. Plus we have a website that shows the last 5 years or so of statements, breaks down the holdings, has an estimator for what the benefits could be, based on the info I plug in, etc. It's not the best website but it is there and a lot of the info is available without having to log in.

I also have a 457b plan though my local gov't. I have 6 plan offerings and am in 3 at roughly 33% each. Nationwide is the provider. If you've never heard of your state offering a 457, I would call your HR dept. and ask about it. They probably will be able to send you enrollment paperwork if they do have one. I started at 3% of my pretax income about 15 years ago and worked my way up to 20% around the time I got married. I've stayed at that level since then and it's growing nicely.

[thyme4change]

Isn't that the same as point (c) in the OP?

[MN-Investor]

"I work for the state government and plan on retiring and collecting my pension in about 30 years.

Now I'm scared for my pension...I know that they have recently changed our pension rules, so to speak, for new hires (vested after 10 years instead of 5, retirement eligible at 65 instead of 60, etc.)"

Working for the state is probably better than working for a city. The fact that they have modified the plan also speaks to the fact that they are trying to manage costs, so that's good too. I think you can depend on receiving something from the state. Just beware that all the folks screaming for balanced budgets and cost reductions have wages and pension plans in their sights, whether it's fair or not.

[8 Bit WWBG]

...:::"I'll start as soon as I can because I do expect the pension fund to exhaust its resources long before I leave this earth.":::...

If there's one thing that has been demonstrated to me repeatedly, its that I should NEVER agree to a deal in which I have to give something up front, that I can't get back, in exchange for the promise of receiving something else later. Too many times I've given, only to NOT get what I was promised, and be out the original.

I'd have thought you'd learned this lesson with your wife.

[TrixAre4Kids]

Jan 13, 2011 11:07:27 GMT -5 hsclassic said:

with the bankruptcies of traditional manufacturers (e.g. Delphi), many companies had their pension programs taken over by the Federal Pension Program (sorry, can't remember their exact name - the eqivalent of the FDIC for pensions). .

Pension Benefit Guaranty Corp
www.pbgc.gov/

[Deleted]

Non-profits (think hospitals and local/state/federal gov't) aren't allowed to offer 401K. My understanding the match on a 401K is basically a type of profit-sharing. Non-profits and the gov't aren't supposed to make a profit. Therefore, non-profits get to administer to 403s and gov't gets 457s. My DH used to recordkeep retirement plans - mainly 401s. Once he looked over my 457, he said the rules were very very similar to his own 401K.

I think there are a couple of sub-types of 457s and 403s but don't know that as fact.

Being a state employee means that your pension data is subject to open records law. So I'm sure the media has done stories on the health of your state plan. I'd google it and see what comes up.

I work for my local gov't. I receive a pension plan statement every year that goes over the health of the plan. Plus we have a website that shows the last 5 years or so of statements, breaks down the holdings, has an estimator for what the benefits could be, based on the info I plug in, etc. It's not the best website but it is there and a lot of the info is available without having to log in.

I also have a 457b plan though my local gov't. I have 6 plan offerings and am in 3 at roughly 33% each. Nationwide is the provider. If you've never heard of your state offering a 457, I would call your HR dept. and ask about it. They probably will be able to send you enrollment paperwork if they do have one. I started at 3% of my pretax income about 15 years ago and worked my way up to 20% around the time I got married. I've stayed at that level since then and it's growing nicely.

I had a chance to look up what a 457 plan is - apparently that is directly related to the "Sign up for the Deferred Compensation Program" emails I keep receiving from our admins. It's offered by Great West Retirement Services. I did check out their information - it mentions that the plan may not be right for you if you are in debt, which I am. So, as much as I'd like to sign up, I think I'll wait another year to have my debt paid off first.

Working for the state is probably better than working for a city. The fact that they have modified the plan also speaks to the fact that they are trying to manage costs, so that's good too. I think you can depend on receiving something from the state. Just beware that all the folks screaming for balanced budgets and cost reductions have wages and pension plans in their sights, whether it's fair or not.

I despise people who scream about state workers not being worth anything, fire them all, they don't deserve holidays, raises, or pensions, blah, blah, blah. I know and understand that I'm being paid by tax dollars, but I bust my hump to earn it. I'm not greedy, I'm happy with what I have at the moment, of course I'd like more, but who wouldn't. Most of the people I see bitching about state workers think we get free healthcare and insane salaries. I admit, the health insurance is great, but I pay good money for it and my salary is only $27k/year. I've found most people in the private sector are grossly misinformed on public employment. If they are so pissed off about public employee benefits, they can easily apply for a position. There are many, many open.

Sorry for the off-topic rant.

[Wisconsin Beth]

I had a chance to look up what a 457 plan is - apparently that is directly related to the "Sign up for the Deferred Compensation Program" emails I keep receiving from our admins. It's offered by Great West Retirement Services. I did check out their information - it mentions that the plan may not be right for you if you are in debt, which I am. So, as much as I'd like to sign up, I think I'll wait another year to have my debt paid off first.

Yeah, it took me a while to remember to check what "Deferred Comp" actually stood for. No one here every calls it a 457 plan. lol.

I was in debt when I started mine. Granted at 3% it takes a while to build but at the time I figured it was a start.