A question on retirement pension plans provided by businesses

[MISSDem]

Recently the company which I work for announced that they are ending the current defined pension plan choice and everyone will be moved to the so called portable pension plan. This is being done, according to the company, in response to recent legislation. Some of us were talking about this and one of my co-workers said something to the effect of "the Democrats are responsible for the legislation that is causing the company to do this. And if you think this is something, just wait until the Democrats get in the White House. They are REALLY going to screw us on Medicare and Social Security." I responded now wait a minute, I believe that the Republicans are responsible for the legislation that is making it attractive to businesses to convert to the portable pension plan. At this point they all turned on me and argued me down (or at least I dropped out of the conversation). Does anyone know the answer?

[denverbill]

1. The Democrats have only been in power for 2 months.

And they haven't passed ANYTHING on pension reform during that time. And even if they had, no company would have had time to change their benefit plan.

My company dumped it's defined benefit plan 2-3 years ago when the Republicans controlled all 3 branches of government.

[MISSDem]

4. That is what I thought and tried to tell them that but

they were adamant. This is how confused people are on the issues. Here is the South they think and are told that all of the bad things that happen to them are the fault of the you know whos - Democrats, the evil ones. It disgusts me.

[antigop]

13. Please see vote tallies in post #9 below. n/t

[sinkingfeeling]

2. Well, the Democrats are a year too late ....

http://www.benefitnews.com/detail.cfm?id=10152
Employee Benefit News • March 2007

Democrats may try to fine-tune pension reform laws
By Lydell C. Bridgeford
After 12 years of Republican rule, the Democrats control Congress, but perhaps a
year too late to have a significant legislative impact on defined benefit plans.
After much wrangling, the major debate on pension reform has been pretty much
settled with the Pension Protection Act of 2006 (PPA).

A chance to revise PPA
When Congress passed PPA, some Dems complained that the law chipped away at
traditional pensions. After President Bush signed the bill, Rep. George Miller,
D-Calif., said the measure puts "pension plans at greater risk of being cut or
dumped entirely" by employers. He voted against the bill.

[antigop]

14. George Miller wanted to provide protections for older workers.

He gave eloquent speeches on the House floor asking that Congress be humane.

The older worker protections did not make it into the final bill, despite Miller's attempts.

[Solo_in_MD]

3. Defined contribution pensions are a better idea all the way around

Part of the issues forcing this was accounting rules for pension plans and the desire for the government to get out of having to guarantee the pensions for companies, which they do now.

Note that the Federal Government went to defined contribution in the 80s, and I wish the other government groups (state, local, districts) would to. New accounting rules which require an honest statement of pension liabilities as part of the issuance of bonds and their ratings may force this.

[sinkingfeeling]

5. I'll keep my monthly defined pension checks, thank you very much. I worked 30 years for

those to start arriving and they will continue til I die.

[Solo_in_MD]

7. Your situation is getting rarer and will soon be the noted exception

Soon it will be almost impossible to stay at one company that long. Do you want those people not to have a pension? What about older/larger companies that go broke? Look at what happened to some airline employees. Not all of them were highly paid pilots. That is going to become more and more frequent for those groups that hold on to the definded benefit pension. The new accounting rules are going to make it worse not better.

State and local governments, including schools districts should also go to defined contribution for the same reasons the Federal Government did. Maybe not forced conversions, but certainly for all starting employees

[antigop]

11. You can have a portable defined benefit pension

Defined benefit pensions put the risk on the company, not the employee.

In fact, I know of one company that has a portable defined benefit pension.

[antigop]

12. Older workers often get screwed when employers shift from DB to DC pension plans n/t

[SharonAnn]

17. Sometimes companies redo this to take the "extra cash" from investments.

When their investments go up, they siphon off the "excess cash".

When investments go down, they reduce employee pensions.

They win, you lose.

[antigop]

18. No, according to ERISA, they cannot just go in and siphon off "excess cash" from a db pension trust

However, they can use the "surplus" in the plan to fatten the bottom line.

There are strict rules under ERISA.

I don't have time right now but I will try later tonight to find some articles that will be of interest.

[SharonAnn]

29. They "replace" the plan with a new one. I've had it happen to me.

All legal, etc. according to ERISA rules. Supposedly I'll be getting the same as I would've gotten before the change. Same amount, no COLA (ever), no adjustments, but no longer any medical coverage, etc.

It didn't escape my notice that the company took out several hundred million $$$ of "surplus" when they replaced the plan.

At least I'm supposedly no worse off because of it, but I find it interesting that had they gone bankrupt the plan could have been terminated, damaging the employees/retirees, but if they do really well there's no benefit to the meployees/retirees.

[antigop]

30. I'm not sure what you are saying....

How in the world does "medical coverage" have anything to do with pension plan changes?

Also, you did not state what was "replaced". Companies can switch to a cash balance pension plan (now legal according to the Pension Protection Act). Companies can change the formula for future accruals. Here is a WSJ article that explains some of the "siphoning of assets" that were used for termination benefits and retiree medical expenses.

http://www.ibmemployee.com/PDFs/WSJ.com%20-%20Firms%20Had%20a%20Hand%20In%20Pension%20Plight.pdf


The article also mentions a pension plan (or part of a plan) that was TERMINATED (not the same as a switch) -- and income and excise taxes are due when they take surplus out in this case.

>>Meanwhile, Midland withdrew $3.6 million in pension-plan overfunding, a move a company is allowed to
make when it terminates all or a portion of a pension plan. After paying income and excise tax, and
transferring a portion to the savings plan as required by law, the company netted $1.2 million in cash.
>>

So, in your case, was a DB plan "replaced" with another DB plan? Or was it "replaced" with a 401(k)? Different scenarios depending upon what was done.

[sinkingfeeling]

19. I was offered a choice of keeping my DB or converting. Difference? A mere 50% in my monthly

income starting in 3 years from the 'choice'. If the company I retired from goes bust, all Americans will have a lot more to worry about than me losing my pension check. I do understand that it is almost impossible for a young person to be hired into a corporation that will keep them for 30 or more years. But the conversions to 'cash balance' plans are killing the retirement planning of older workers. The PPA of 2006 didn't help us one bit.

[Solo_in_MD]

20. I am not advocating forced conversions, though it is much easier than it used to be

I believe we have to pay the defined benefit pensions out to those they were promised to. I view it as the bitter pill we have to swallow to get to the portable pension environment we need to be at.

What scares me is local districts and governments that are unable to make the change due to protest. Those areas are going to be at economic disadvantage when it comes to bond ratings and overall economy since their taxes in 10 years will make New Jerseys look low.

[antigop]

21. Oh, good grief! A bitter pill -- to pay people's EARNED pensions???? n/t

[Solo_in_MD]

22. Indeed...those pensions are dramatically UNDERFUNDED and are actuarially unsound

That means that the companies or agencies will have to make up the difference later. That is the bitter pill.

Some companies will go bankrupt, so the pensioners are going to be hurt, since even if it is insured, it will not be at the full levels. If its a government agency, taxes and fees will have to go up to cover the historical underfunding. Again, a bitter pill.

New accounting rules may force local and state agencies to more accurately state their pension liabilities, which will impact their credit ratings and the price they get for bonds. Additionally areas with higher taxes cause people to move to less costly areas which in turn requires an increase of taxes on the remaining people. Again, more bitter medicine.

Currently defined benefit pensions, now mostly at the state and municipal level are growing unchecked and in many cases unaudited. Unlike roads and other infrastructure, pensions are not an investment in the future. Government should be as much as possible pay as you go. Defined benefit pensions are counter to that and are a vestige of the clearly outdated industrial model.

I am not advocating canceling them or forced changes, but people need to understand that they are a economic time bomb and will be a bitter pill for the states and localities, one the Feds and now companies are getting away from for good reason.

[antigop]

23. Please READ about companies' "underfunding" from the WSJ

http://www.post-gazette.com/pg/06177/701286-28.stm
>>
To help explain its deep slump, General Motors Corp. often cites "legacy costs," including pensions for its giant U.S. work force.

In its latest annual report, GM wrote: "Our extensive pension and (post-employment) obligations to retirees are a competitive disadvantage for us." Early this year, GM announced it was ending pensions for 42,000 workers.

But there's a twist to the auto maker's pension situation: The pension plans for its rank-and-file U.S. workers are overstuffed with cash, containing about $9 billion more than is needed to meet their obligations for years to come.

Another of GM's pension programs, however, saddles the company with a liability of $1.4 billion. These pensions are for its executives.
>>

[sinkingfeeling]

27. Yes, some corporations are in this mess because of 'special' pensions for the execs.

I get about $34,000 a year after my 30 years and the current CEO will receive over $12 million a year when he retires with 32 years. I'm lucky that the employees' pension fund is fully funded, at least according to them and the auditors.

[antigop]

24. Mary Williams Walsh at the NY Times has written several articles about public pension plans

but the OP asked the question about COMPANY retirement plans.

And if you read the WSJ journal article (along with other articles by Ellen Schultz of the WSJ) you will find the truth about COMPANY retirement plans.

[ProudDad]

25. Are there no work houses?

Scrooge: 'Are there no prisons?"

'Plenty of prisons,' said the gentleman, laying down the pen again.

'And the Union workhouses.' demanded Scrooge. 'Are they still in operation?'

'Both very busy, sir.'

'Oh. I was afraid, from what you said at first, that something had occurred to stop them in their useful course,' said Scrooge. 'I'm very glad to hear it.'

'Under the impression that they scarcely furnish Christian cheer of mind or body to the multitude,' returned the gentleman, 'a few of us are endeavouring to raise a fund to buy the Poor some meat and drink, and means of warmth. We choose this time, because it is a time, of all others, when Want is keenly felt, and Abundance rejoices. What shall I put you down for?'

'Nothing!' Scrooge replied.

'You wish to be anonymous?'

'I wish to be left alone,' said Scrooge. 'Since you ask me what I wish, gentlemen, that is my answer. I don't make merry myself at Christmas and I can't afford to make idle people merry. I help to support the establishments I have mentioned-they cost enough; and those who are badly off must go there.'

'Many can't go there; and many would rather die.'

'If they would rather die,' said Scrooge, 'they had better do it, and decrease the surplus population."

==================

And who the HELL "underfunded" them???

[antigop]

34. You are lucky.

1) You are lucky you got a choice.

2) You are lucky they didn't freeze the plan before you became retirement eligible.

Others aren't so lucky.

[antigop]

6. Federal Employees Retirement System (FERS) is three-tier

http://www.opm.gov/retire/html/retirement/fers.html
>>
The Federal Employees Retirement System (FERS) became effective in 1987, and almost all new Federal civilian employees hired after 1983 are automatically covered by this new retirement system. The Federal Employees Retirement System is a response to the changing times and Federal workforce needs. Many of its features are "portable" so that employees who leave Federal employment may still qualify for the benefits. The new retirement system is flexible. Covered employees are able to choose what is best for their individual situation.

The retirement system is a three-tiered retirement plan. The three components are:

* Social Security Benefits,
* Basic Benefit Plan, and
* Thrift Savings Plan Benefits.
>>

I believe federal employees get both a defined benefit pension plan (annuity per month) and a defined contribution (like a 401(k)) plan which is called the Thrift Savings Plan, in addition to Social Security.

[Solo_in_MD]

8. The basic benefit is a pittance

and I am surprised it still survives. I expect it will disappear. The TSP is the serious part of the current Federal retirement package

[antigop]

10. No, I do not think that is correct n/t

[Solo_in_MD]

15. Isnt it 1% for every year worked, based on high 3?

Which means 30 years, finishing as a GS-14 Sr Manager and you get around $30K/year. GS-9s get much less. Yes its free, but its not much. If you contribute to TSP, then you get the matching funds and all that. Its where the real retirement funding is in FERS.

Look around at the technical fields. How many companies still exist from 20 years ago? What happened to the defined benefit pensions at those companies? What happened to those with 401Ks instead?

[antigop]

16. I'll repeat -- there is nothing preventing a portable defined benefit pension plan n/t

[LiberalFighter]

28. They only receive from the Thrift Savings Plan if they contribute

and based on what and how they contribute.

If they don't contribute then they only have a two legged stool plan vs a more stable 3 legged stool plan.

[antigop]

33. And they won't outlive the income from the DB plan n/t

[antigop]

9. I would assume you are talking about a conversion to a cash balance pension plan

The Pension Protection Act was passed last August -- it legalized cash balance pension plans.

The vote tallies are listed here:
http://www.cashpensions.com/

Please note the difference in the percentage of Dems in the House that voted against this bill, compared to the percentage of Dems in the Senate that voted against this bill.

Ask Ted Kennedy why he sold us out.


Various lawsuits were filed by employees who were converted to cash balance plans. One of the most famous was Cooper V. IBM. A district court ruled in favor of the employees but the appellate court overturned the lower court decision. The Supreme Court refused to hear the case.

Guess who appointed the district court judge who ruled in favor of the employees....

Guess who appointed the appellate judge who ruled in favor of IBM.....

[trof]

26. I have both. Pros and cons:

From 1968 until 1986, I worked under a Defined Benefit (DB) pension contract. At that point the DB was 'frozen' and the company went to a Defined Contribution (DC) plan.

Too complicated to go into here, but I was not able to stay on the payroll until I qualified for the full DB benefit at age 55. If I could have, I'd be getting about $3000 a month now. Due to the penalty for early retirement I get about $1500. While my funds were in the DB account a company and union committee made the decisions on how that money was invested. I had no say so.

When I left the company in 1994 my DC account had around $600,000 in it. The 'good' part about the DC is that I had some (limited) control over how the money was invested while I was a plan participant.

When I left the company for good, I converted my DC 'lump sum' to a personal brokerage IRA account.

The $1500 a month is a constant that I can pretty much count on. The income from the IRA depends on how smart an investor I am.

[antigop]

31. Yes, the $1500 is NOT your risk. The earnings on the DC are. n/t

[trof]

35. Yeah...well...the $1500 now comes from the PBGC.

Pension Benefit Guarantee Corporation.
The government entity that takes on pensions promised by companies bankrupt or completely out of business, as mine is.
TWA.
So my pension now depends on the solvency of the U.S. Government.
WHAT?
THEY'RE NOT?
uh oh

The PBGC is presently billions in the red.

[antigop]

32. For a really good discussion on pension plans, please get Sirota's "Hostile Takeover"

He devotes a whole chapter to pension plan switches to cash balance plans and 401(k)'s.