How Common Are Company Pensions?

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nimo956
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How Common Are Company Pensions?

Post by nimo956 » Wed Aug 31, 2011 12:58 pm

I addition to a 401k w/ a 6% match (at Vanguard no less!), my company also has a defined benefit pension plan. I'm wondering how common it is for a company to offer both? I don't currently contribute anything to this pension from my salary. It seems to be funded entirely by the company. I've only been working at this company for 3 years, so I don't currently incorporate it into my retirement plan, but I've been wondering about how much you can depend on this money in retirement?

The latest annual funding notice claims that the plan is 94% funded in 2010, was 95% funded in 2009, and 89% funded in 2008. According to the investment policy, 100% is invested in "common/collective trusts." What is that exactly?

There is also language that relates to what happens if the pension plan is terminated. I believe that the company either has to purchase an annuity for you or give you a lump sum. There are also protections by the PBGC.

I still have my whole working career ahead of me, but I'm wondering how likely this is to be around when it's time for me to retire?
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SharkSoul
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Post by SharkSoul » Wed Aug 31, 2011 1:01 pm

I heard that company pensions used to be 80% of companies now only 30% and that trend is continuing. Most companies these days don't even do one of the two.
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steve roy
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Post by steve roy » Wed Aug 31, 2011 1:08 pm

The motion picture industry has a network of multi-employer pensions through the unions and guilds that rep employees in the industry:

Screen Actors Guild, Directors Guild of America, the Writers Guild of America all have separate, well-funded pension plans.

In addition, there's a large, five billion dollar plan called The Motion Picture Industry Pension and Health Plan that covers"below the line" workers: editors, costumers, cinematographers, make-up artists, teamsters, etc.

These plans are viable because the movie and television industries remain heavily unionized.

Wagnerjb
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Post by Wagnerjb » Wed Aug 31, 2011 1:16 pm

About 10 years ago my company closed the traditional defined benefit pension plan to new entrants, but kept the program going for existing members. New employees have a defined contribution pension plan whereby the company contributes a fixed percentage of their salary to the plan, and the balance grows at a specified rate of interest. The employee doesn't pay anything into the plan, it is entirely company funded.

My company also offers a generous 401k plan matching contribution, averaging around 9% over the past decade.

Best wishes.
Andy

Mitchell777
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Post by Mitchell777 » Wed Aug 31, 2011 1:45 pm

You may want to ask how many years until you are vested. Also you should know the calculation of benefits. Also, what happens if you quit or are terminated after vesting (do you get a lump sum - if not is there any indexing for inflation (unlikely), how old must you be to begin collecting).

Easy Rhino
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Post by Easy Rhino » Wed Aug 31, 2011 1:46 pm

My Dad was treasurer at his golf club, which offered a (small) defined benefit pension for employees.

hsv_climber
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Post by hsv_climber » Wed Aug 31, 2011 2:08 pm

Here is an interesting list.
Below is a list of employers that have announced significant changes to their defined benefit pension plans since December 2005. Changes include plan terminations, plan freezes for new and/or current employees, and changes to the formula by which pension benefits are calculated.
http://www.pensionrights.org/publicatio ... sion-plans

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NateH
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Re: How Common Are Company Pensions?

Post by NateH » Wed Aug 31, 2011 2:16 pm

nimo956 wrote:I addition to a 401k w/ a 6% match (at Vanguard no less!), my company also has a defined benefit pension plan. I'm wondering how common it is for a company to offer both? I don't currently contribute anything to this pension from my salary. It seems to be funded entirely by the company. I've only been working at this company for 3 years, so I don't currently incorporate it into my retirement plan, but I've been wondering about how much you can depend on this money in retirement?

The latest annual funding notice claims that the plan is 94% funded in 2010, was 95% funded in 2009, and 89% funded in 2008. According to the investment policy, 100% is invested in "common/collective trusts." What is that exactly?

There is also language that relates to what happens if the pension plan is terminated. I believe that the company either has to purchase an annuity for you or give you a lump sum. There are also protections by the PBGC.

I still have my whole working career ahead of me, but I'm wondering how likely this is to be around when it's time for me to retire?
My company has a defined bennifit plan and still allows new employees to enroll, although I did not.
I started here 2 years ago; new employees are able to choose to enroll or take an additional 5% of salary match into their (Vanguard) 401k. I took the extra match over the pension, because an 11% total match on a 6% 401k contribution was too appealing.

I'm under 40, and the thought of depending on some corporation for my future retirement funds was a negative. I guess I'm more of a bird-in-the-hand kind of guy, when it comes to believing that the company will be around in 20 years or that I'll work here long enough to accumulate any meaningful pension for myself. People simply don't spend an entire career with one employer like they did in the past.

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dm200
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Post by dm200 » Wed Aug 31, 2011 3:49 pm

I suspect that private companies (except for very small, closely held ones) that offer the classic defined benefit pension to new employees is close to zero (perhaps as high as low teens) today.

IBM, for example, which once had the best of the best pension programs has eliminsted it for new employees and (I think) frozen it for existing employees.

scrabbler1
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Post by scrabbler1 » Wed Aug 31, 2011 4:54 pm

Wagnerjb wrote:About 10 years ago my company closed the traditional defined benefit pension plan to new entrants, but kept the program going for existing members. New employees have a defined contribution pension plan whereby the company contributes a fixed percentage of their salary to the plan, and the balance grows at a specified rate of interest. The employee doesn't pay anything into the plan, it is entirely company funded.

My company also offers a generous 401k plan matching contribution, averaging around 9% over the past decade.

Best wishes.
Is the first thing you described also called a "Cash Balance" plan, one which has features of a defined benefit plan and a defined contribution plan?

The company I once worked for did, about 10 years ago, freeze its pension for younger employees while grandfathering its existing pension program for the older ones. Those with frozen pensions also got the Cash Balance plan going forward, as did new hires (but starting in 2005 the CB was phased out for new hires and replaced with a profit sharing plan).

I am an early retiree so I have the frozen pension and a small amount in the CB plan (only 6 years in it at part-time pay) which is supposed to grow over time anyway. But the company stock (ESOP) was the big payoff for me, as its price per share had grown 3000% (yes, that is thousand) in the first 12 years it was around. :)

Wagnerjb
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Post by Wagnerjb » Wed Aug 31, 2011 7:55 pm

scrabbler1 wrote:Is the first thing you described also called a "Cash Balance" plan, one which has features of a defined benefit plan and a defined contribution plan?
Yes it is, but I don't consider it to have any features of a defined benefit plan. The contribution is defined, the interest is defined, and your benefit is whatever it is.

Best wishes.
Andy

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DaleMaley
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Post by DaleMaley » Thu Sep 01, 2011 5:47 am

I found this chart a couple years ago. It came from an NPR story on recovering from the Crash of 2008.

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RadAudit
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Post by RadAudit » Thu Sep 01, 2011 6:21 am

I'm wondering how much I can depend on a defined benefit retirement program, too. But I'm retired and drawing a pension.

Mitchell777 raises excellent questions.

My company changed hands four times in 40 years. (5 times in 45 years - but whose counting?) The next to the last owner changed the terms of the pension for future contributions of current enrollees and switched over to a defined contribution plan for new hirees.

A lot can happen over time, even your interest in remaining with the corporation. So with defined benefit plans, it might be best to not plan too much on things remaining the same.
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MP173
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Post by MP173 » Thu Sep 01, 2011 7:15 am

I am 56 and have never been in a pension plan. My two employers over the years (2 employers in 35 years!) have both offered 401k plans. Both plans offered only 2% matches, so the retirement has been up to me.

Mixed feelings about that. On the one hand, had I known that my employment would have been with 2 employers (current has been 21 years with another 10 in site), it certainly would have been great to have been involved with a defined benefit plan. However, who knew? and further had I worked for a company with such a plan, what assurances would there have been that my career would have been as successful. My current employer has grown from a small company to a mid sized industry leader. There was no possibility the company could have had a pension 21 years ago and had been successful. The funding would have gone to benefits rather than investment in capital.

While the 2% match has not been generous, it has forced me to take a serious look at my personal finances and to manage those finances myself. This responsibility led to further interest in personal finance and that has been good for me and my family.

The local steel industry employees were devistated a few years ago with bankruptcies to Bethlehem Steel and LTV. Pensions were cut dramatically, leaving retired employees and current employees with a fraction of their benefit. That event, plus the market meltdown in 08 was a real wakeup call for me.

It is not easy being your own pension administrator, particularly the past few years. However, having this responsibility has forced me (and others, particularly on this forum) to really explore the issues with retirement, funding, and rules/laws pertaining to it.

Not a bad thing overall. Still, it sure would be nice to have a monthly check down the road!

Ed

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ascenzm
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Post by ascenzm » Thu Sep 01, 2011 7:43 am

My original private sector employer offered both a defined benefit pension and an employee savings plan that changed into a 401K plan when 401Ks started. My current employer purchased my former employer and maintained both the defined benefit pension and the 401K plan.

The 401K plan offers an employer match that has a maximum value of 3% of my salary. I have to contribute 6% of my gross pay to get my employer to add 3% of my gross salary.

My employer's defined benefit pension works differently than any other defined defined benefit pension that I've examined. Participation is voluntary, but once you sign up for the pension, you cannot get out other than to leave your job. Every year, we contribute 1.5% of our gross salary to the pension and a credit equal to 2% of our gross salary is added to the annual amount we will get from the pension if we retire at 65 and start collecting the pension. The employer ended the pension lump sum option in 1994 so we have to take the pension as an annuity.

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eastbg
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Post by eastbg » Thu Sep 01, 2011 7:55 am

.
Northwest Airlines: My neighbor died, did not have a current spouse, but had children, and the entire pension was lost.

Exxon Chemical. If you work one day past retirement age, you lose all company matching. A friend learned this the hard way (suicide).

Peculiar as hell...
...

dogdoc83
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Post by dogdoc83 » Thu Sep 01, 2011 7:59 am

My husband has worked for 2 companies that still have both a defined benefit plan and a defined contribution (401k) plan. He just started a job last month with a large multi-national pharmaceutical company after having retired from a consumer products company in April. These types of benefits may well be on the decline, but they do still exist.

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