Pension Freeze - What did you do?

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nedsaid
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Re: Pension Freeze - What did you do?

Post by nedsaid » Sat Oct 07, 2017 12:38 pm

tooluser wrote:
Fri Oct 06, 2017 6:44 pm
My company has stated it will freeze the pension plans at the end of the next fiscal year. I am wondering what others did in similar situations. It's a hard freeze where they will maintain any vested benefit but move onto a completely new defined contribution plan for all. The new plan is somewhat generous by today's standards, but is an extreme blow to those several years out from retirement.

I am working through the DABDA cycle - denial, anger, bargaining, depression, acceptance. I knew this could happen, so denial was not an issue. I am in the anger stage but do not believe there is any chance at bargaining, so there is no need for depression, only acceptance of what is and will be. Plans for the future (retirement) now likely stretch out a couple of more years, best case.

The company will replace the three pension plans we have with a defined contribution plan of (as far as I can tell) about half the value of my pension plan. I am 52 so have 3 more years to claim the earliest retirement benefit. The benefit is reduced for early retirement, so I may have worked longer despite the freeze, though I would formerly have had "enough" to retire at age 55 (thanks to good savings habits).

I''m pretty sure that no company has ever reversed the decision on this. It's contemptible that they are balancing the books on the backs of their most experienced and loyal employees. Are there any statistics on how likely it is for a company that makes such drastic cuts to go out of business entirely? I wonder if they will even fulfill the new obligations for any length of time. It's extremely dismaying that this decision was made in times of good investment returns for the pension plan.
This is the brave new world. My former employer suffered big losses in its cash balance pension plan during the 2008-2009 financial crisis, it was a cash balance pension that guaranteed 3% above inflation. They were invested 70% stocks/30% bonds, so you can imagine the percentage losses in their portfolio. The employer had to make large contributions into the pension plans to get the funding levels vs. future liabilities back in balance. They froze the pension but still gave one percent above inflation up to four percent. So in that case, you can't blame them.

What they did was give us monies in lieu of the pension contributions to invest any way we wanted. I used those monies to buy a Target Date 2025 fund.

In your case, the markets are doing well. The company just wanted to eliminate another layer of uncertainty. Hard to take as a loyal employee but that is the world we live in today. You will find that loyalty isn't much valued, you should probably increase your savings rate and maybe plan to work a bit longer.
A fool and his money are good for business.

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ClevrChico
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Re: Pension Freeze - What did you do?

Post by ClevrChico » Sat Oct 07, 2017 3:16 pm

My pension is scheduled to freeze too. The pension is completely out of my control, so I try not to worry about it. The 401k is completely in my control, so I focus on that.

I do understand your frustration. The reality of a frozen pension is that we're taking a cut to our total compensation. It's a rich man's world.

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tooluser
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Re: Pension Freeze - What did you do?

Post by tooluser » Sat Oct 07, 2017 7:49 pm

Watty wrote:
Sat Oct 07, 2017 5:30 am
Several times I have seen or heard of the series of layoffs that go something like;

1) Great package that anyone that is eligible for should jump at especially if they have other healthcare options and want to retire early.

2) Still really good and most people will be able find other work and do OK. The people not laid off are slammed with doing the work of the laid off people and those left behind envy the people that got the package since the work environment is so bad.

3) Two weeks pay in lieu of notice and a security guard literally walks you to the door. Any personal things left in your desk will be mailed to you.
The last layoff my company had, they started at 2.5 and progressed immediately to 3 for anyone on the RIF list who didn't take the first mediocre offer. They did give you a box and a few minutes to pack some personal items though, under scrutiny by security of course. The mood was very sour for days afterward.

That was very different than layoffs that had occurred 15 years earlier, which were fairly cordial, though I'm sure few who got laid off enjoyed it. A very different sort of philosophy these days. I wonder which approach results in fewer lawsuits?

I am now drifting off my own topic... :o
Had we come a little later, we'd have seen a better crater. -- M.P., Sept 1886 (on Kilauea)

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tooluser
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Re: Pension Freeze - What did you do?

Post by tooluser » Sat Oct 07, 2017 7:57 pm

Dandy wrote:
Sat Oct 07, 2017 7:19 am
It is a bit of a race to the bottom. Part of a business and government trend to push risk to individuals. On the business side it has become acceptable to do this and a company might be questioned as to why they aren't doing this to maximize earnings. On the government side there is always a concern about using tax dollars to fund municipal pensions/other benefits - as the population grows and so does health care expenses, cities/states try to balance the political ugly idea of raising taxes with the fear/concern of cutting benefits - raising taxes seems a worse idea most of the time. Aging population and rising medical costs raises similar issues on a Federal level with similar difficult trade offs.
There are definitely market forces at work, so that makes it a little easier to take. Still, my company prides itself on being creative, yet there's never any evidence of that on the business side. You would think there would be some war stories told where the company did well despite adversity. Perhaps that is felt to be unseemly. Management is very image-conscious, outwardly but not inwardly. I guess because they don't have to be.
Had we come a little later, we'd have seen a better crater. -- M.P., Sept 1886 (on Kilauea)

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tooluser
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Re: Pension Freeze - What did you do?

Post by tooluser » Sat Oct 07, 2017 8:23 pm

feehater wrote:
Sat Oct 07, 2017 8:48 am
Wow, so you're represented by a (weak) union, yet the benefits are not negotiated in the contract? In my workplace any adjustment to the retirement benefits would require us agreeing to a change in the CBA. Also, as mentioned above, some union pension plans ("multi-employer") are not covered by the PBGC and have much lower guarantees. Although that does not sound like the case here.
The benefits are negotiated to an agreement, but it includes the raise pool and other benefits. So the company has the leverage to withhold raises/lump sums until the agreement is signed. Most people want their raise/lump sum. There's also the threat of withholding medical benefits. As a result the union ends up caving and signing almost anything. They occasionally have a small victory, but only if it doesn't cost the company much.
Had we come a little later, we'd have seen a better crater. -- M.P., Sept 1886 (on Kilauea)

Dottie57
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Re: Pension Freeze - What did you do?

Post by Dottie57 » Sun Oct 08, 2017 8:45 am

tooluser wrote:
Sat Oct 07, 2017 8:23 pm
feehater wrote:
Sat Oct 07, 2017 8:48 am
Wow, so you're represented by a (weak) union, yet the benefits are not negotiated in the contract? In my workplace any adjustment to the retirement benefits would require us agreeing to a change in the CBA. Also, as mentioned above, some union pension plans ("multi-employer") are not covered by the PBGC and have much lower guarantees. Although that does not sound like the case here.
The benefits are negotiated to an agreement, but it includes the raise pool and other benefits. So the company has the leverage to withhold raises/lump sums until the agreement is signed. Most people want their raise/lump sum. There's also the threat of withholding medical benefits. As a result the union ends up caving and signing almost anything. They occasionally have a small victory, but only if it doesn't cost the company much.

You do have a poor union. Union leadership should have an actionable plan for negotiatong.

dmp221
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Re: Pension Freeze - What did you do?

Post by dmp221 » Sun Oct 08, 2017 9:02 am

It is a bitter pill to accept the reality that defined benefit plans are simply unsustainable. Being able to predict a benefit years from now, in good and bad markets, must always rely on SE money (Someone Else's). In most cases with public employees, the SE is the taxpayer...which is why so many cities, counties, even states are in such bad financial shape. None of this is your fault. As a young person accepting a job, you simply agreed to what was offered. But the fact is that what was offered was a lie. Only defined contribution plans can be counted on as yours. What you accumulate for retirement is up to your investing ability over your working years, and the general health of the markets. Your benefit is defined at the end of the line...and NOT subsidized by SE money.

Valuethinker
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Re: Pension Freeze - What did you do?

Post by Valuethinker » Sun Oct 08, 2017 11:49 am

tooluser wrote:
Fri Oct 06, 2017 7:56 pm
Uncle Pennybags wrote:
Fri Oct 06, 2017 7:34 pm
I assume you are not a represented employee. They can't take back what you have vested in the defined benefit plan. All companies are doing away with defined benefit plans and switching to defined contribution plans. Depending on the company match and investment choices you can do better investing on your own. Some companies want out of defined benefit plans so much they are buying annuities from insurance companies to take over their pension obligation. They want a know expense going forward.
I looked up "represented employee" as a new term to me- I am one, but our union is not very powerful, so I expect nothing from them but pointing out the discrepancy between management's words and actions.

I'm running through the calculations to understand the financial hit in more detail. A lot of employees are calculating the hit as the total lifetime income that is lost from this point forward, but that is not correct. It is more correctly the net present value of an inflation-adjusted annuity purchased at the end of next fiscal year that would make up the difference in expected pension benefit.

The reasons for the freeze appear to be much more along the lines you state - reducing corporate uncertainty - than any real and detectable crisis. That's where the anger comes from. It appears to be largely punitive against good people, rather than fiscally necessary. A decision based on scary and shadowy monsters somewhere on the road ahead.
Studies have repeatedly shown employees value current pay and benefits over deferred ones. So in terms of recruiting the right people this makes sense.

Check the Report and Accounts though re the pension fund. There is often a significant deficit.

A big part of the actuarial calculation is expected future returns not past returns. Expected future returns on bonds and equities are much lower, so that will increase the deficit. Also future liabilities are discounted and the lower the discount rate the higher the current deficit.

What has really happened is, most probably, the company has accepted the truth that it cannot afford to pay future pensions. The rule of thumb was 15 per cent contribution rate for final salary schemes from employer and employee combined. Under current likely returns, 25 per cent of more would be necessary.

It is also a race to the bottom of competitors dont face those costs. Hence the GM and Chrysler bankruptcies Vs the Honda and Toyota transplants. If your competitors don't have these costs you must also shed them.

This happened at IBM, once the perfect example of the good benefits employee for life company.

Valuethinker
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Re: Pension Freeze - What did you do?

Post by Valuethinker » Sun Oct 08, 2017 11:54 am

Dottie57 wrote:
Sun Oct 08, 2017 8:45 am
tooluser wrote:
Sat Oct 07, 2017 8:23 pm
feehater wrote:
Sat Oct 07, 2017 8:48 am
Wow, so you're represented by a (weak) union, yet the benefits are not negotiated in the contract? In my workplace any adjustment to the retirement benefits would require us agreeing to a change in the CBA. Also, as mentioned above, some union pension plans ("multi-employer") are not covered by the PBGC and have much lower guarantees. Although that does not sound like the case here.
The benefits are negotiated to an agreement, but it includes the raise pool and other benefits. So the company has the leverage to withhold raises/lump sums until the agreement is signed. Most people want their raise/lump sum. There's also the threat of withholding medical benefits. As a result the union ends up caving and signing almost anything. They occasionally have a small victory, but only if it doesn't cost the company much.

You do have a poor union. Union leadership should have an actionable plan for negotiatong.
Union membership in US private sector is now about 11 per cent I believe. Most big industrial concerns have relocated to Right To Work states.

I believe many union members are members of multi employer plans (thinking Teamsters). If you read pbgc statements there is a vast deficit and no sign the Congress will address, so those members are likely to lose some or even a majority of their benefits.

Airline workers were heavily unionised but it has not saved their pensions, as I understand the situation.

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Dale_G
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Re: Pension Freeze - What did you do?

Post by Dale_G » Sun Oct 08, 2017 1:42 pm

My company froze the pension plan four years before I retired. They compensated by making additional contributions to the 401k that immediately vested. I was actually pleased because I would "own" the assets rather than the (additional) stream of pension income over an uncertain life span. The 401k was excellent.

The pension plan was not cola'd and the buying power today is about 1/3rd less than at the time of my first payment. I'm certain that the growth of the additional 401k contributions far exceeds what I would have received if the pension plan had not been frozen.

Ten years after I retired, the company terminated the 401k plan, so not good for those still employed.

Dale
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bada bing
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Re: Pension Freeze - What did you do?

Post by bada bing » Sun Oct 08, 2017 4:53 pm

I have been through the freezing of my pension no less than 3 times.
It has been a common trend for 20 years in petro-energy, where I work:

1st pension was frozen when the facility I work at was sold. No lump sum
offering so I still have this. It is worth $800 a month, non-cola'd, starting
at age 65. After the sale I was immediately vested and started building
credit in the plan of the acquiring company.

2nd pension was frozen after 8 years and the company added an additional
4% to the 401K match to partially make up for it. The company closed the
facility and laid everyone off a year later. There was no lump sum offered, but
just last year (10 years after lay off), the company offered a lump sum
or a placement with a private annuity (only options). I took the lump
and rolled into IRA.

3rd pension was frozen after I had been with the company just two years.
They vested everyone when the pension was frozen, so I came out ahead
on this. I left the company for a better job the month after the freeze. No
lump sum option, I will get $200 a month, non-cola'd, starting at age 65.

4th pension is with my current employer and is still active but I'm holding
my breath. It is different from the other pensions I had in being a cash
balance plan with an annuity election. The eventual annuity will pay at
market rates at the time of annuitization. The cash balance grows at the
greater of the 30 year treasury or 5%. I actually like this type of plan better
than my first pensions, even though I realize it has some risks shifted onto
me verses the more traditional plans.

The idea that there is a shared commitment with loyalty both ways between
megacorps and employees was dead 20 years ago IME. I have been very fortunate
and piecemeal built up a nice pile of benefits over my working time, but there
was a lot of turmoil and uncertainty over those years. I very much appreciate
what I've received so far from my employers and they have been generous, but
they also got their pound of flesh from me in return. I don't expect younger
workers to have even as easy a time as I did. In 2 years it won't matter to me,
I intend to retire at age 60. I would judge it maybe 50-50 whether my current
pension will remain unfrozen past my retirement date.

ubermax
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Re: Pension Freeze - What did you do?

Post by ubermax » Sun Oct 08, 2017 5:21 pm

tooluser wrote:
Fri Oct 06, 2017 6:44 pm
I''m pretty sure that no company has ever reversed the decision on this. It's contemptible that they are balancing the books on the backs of their most experienced and loyal employees. Are there any statistics on how likely it is for a company that makes such drastic cuts to go out of business entirely? I wonder if they will even fulfill the new obligations for any length of time. It's extremely dismaying that this decision was made in times of good investment returns for the pension plan.
In my experience the company most likely can't afford the plan and wants to terminate it but the funding level is such that plan assets are insufficient to cover the value of current accrued benefits ; and so the "hard" freeze is more like an amputation as opposed to a big band-aid with a "soft" freeze - liabilities will still increase because of the passage of time but not like they would if accruals continued and new hires came on board - the employer will continue to fund the plan until it's sufficient and then terminate .

If they go into bankruptcy then they can apply for a distress termination with PBGC - year's ago my wife's company froze her plan and then after a few years they could cover the termination liability and she lumped out with a roll .

My recommendation , sit back and relax , it's out of your control and feel fortunate that they are giving you something with the new plan - I didn't read the other posts and so my apology if my perspective and points have already been covered .

Good luck !!

basspond
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Re: Pension Freeze - What did you do?

Post by basspond » Sun Oct 08, 2017 6:04 pm

tooluser wrote:
Fri Oct 06, 2017 8:03 pm
.... For many years, and even just a month ago, the CEO stood up and reported in person to the employees that we are excellent workers, our customers love us, and we have a bright future. Apparently they were always lying. Not really a surprise, but what was the point of the deception?
And I am sure the CEO and the management team are getting hefty bonuses for cutting costs. Been on the receiving end of those cost cutting measures. Hope you can retire on your terms.

inbox788
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Re: Pension Freeze - What did you do?

Post by inbox788 » Sun Oct 08, 2017 11:10 pm

alec wrote:
Sat Oct 07, 2017 7:40 am
Late last year, my company froze the pension, and replaced it with more contributions to the 401k whether employees contribute or not... on top of the match. A few weeks after the announcement, HR had a whole bunch of open meetings to go through the details, and then the third party benefits consultant sent all employees estimates of the future value of your 401k, using:

1. your current employee contribution
2, match
3. extra employee contribution in lieu of pension
4. three separate rates of return

and then they threw in the present value of the accrued pension benefit.

If the OP gets this, compare this to the present value of what your pension would've been if it had not been frozen.

I think a lot employees were pissed until they got the projections. I was still pissed, but since there's nothing i can do except quit, I just accepted it and moved on. Also, every time the CFO or someone brings up "fiscal responsibility", employees ask "what about all that money you saved by freezing the pension?'" :twisted:
You trade the security of an annuity for the risk of the market. I got a similar buyout offer many years back. I think they were matching 25 or 50% of the 401k benefits (which they cancelled down the road). I passed, and the market went up, so I wondered if I made the wrong choice. Then a couple of years later the market crashed and I was glad I didn't sign up. But now that the market has recovered, I think those that took the option and stuck it out are doing much better. But you never know when you have to decide today...

Valuethinker
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Re: Pension Freeze - What did you do?

Post by Valuethinker » Mon Oct 09, 2017 10:19 am

inbox788 wrote:
Sun Oct 08, 2017 11:10 pm
alec wrote:
Sat Oct 07, 2017 7:40 am
Late last year, my company froze the pension, and replaced it with more contributions to the 401k whether employees contribute or not... on top of the match. A few weeks after the announcement, HR had a whole bunch of open meetings to go through the details, and then the third party benefits consultant sent all employees estimates of the future value of your 401k, using:

1. your current employee contribution
2, match
3. extra employee contribution in lieu of pension
4. three separate rates of return

and then they threw in the present value of the accrued pension benefit.

If the OP gets this, compare this to the present value of what your pension would've been if it had not been frozen.

I think a lot employees were pissed until they got the projections. I was still pissed, but since there's nothing i can do except quit, I just accepted it and moved on. Also, every time the CFO or someone brings up "fiscal responsibility", employees ask "what about all that money you saved by freezing the pension?'" :twisted:
You trade the security of an annuity for the risk of the market. I got a similar buyout offer many years back. I think they were matching 25 or 50% of the 401k benefits (which they cancelled down the road). I passed, and the market went up, so I wondered if I made the wrong choice. Then a couple of years later the market crashed and I was glad I didn't sign up. But now that the market has recovered, I think those that took the option and stuck it out are doing much better. But you never know when you have to decide today...
Annuity rates have fallen so much that I doubt the average retiree is better off now than in 2007 say. In the end a pension is about spending is income not total assets. A 65 year old needs more than 2x the assets for the same income now as in 2007.

So you probably have not lost. And generally dB pension plans give much greater security although they do not hedge inflation risk. Delaying Social Security is the best strategy there for most private sector workers.

2pedals
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Re: Pension Freeze - What did you do?

Post by 2pedals » Tue Oct 10, 2017 8:02 am

The weakest companies that have defined benefit pension plans gave up on them years ago. Companies that are moving to a defined contribution plan may or may not be financially stable. Today's companies that are transitioning have waited many years to do the transition already unlike the previous crop. I believe only a few companies have the intention to keep the DB plan but can not afford to do so. Some very stable and mega corporations have only recently transited to a less generous DC plan mainly to boost profits and the eliminate risk of managing the DB plan.

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Re: Pension Freeze - What did you do?

Post by Sandi_k » Fri Oct 13, 2017 7:09 pm

tooluser wrote:
Fri Oct 06, 2017 10:26 pm
Watty wrote:
Fri Oct 06, 2017 9:49 pm

2) My company gave credit for additional years of service in the lump sum calculation to people who had worked there more than ten years. This helped the older employees do OK . I am not sure how common that is.
Thank you to all the comments so far.

The item 2) above I had not considered and may be worth putting back to the company. The freeze does not take effect for about a year, so there is some time to discuss. It seems wrong that those very near retirement and those very far from retirement would benefit more (or be harmed less) than those in the intermediate range. That's a legitimate argument for fairness in the application of the reduction of benefits. We don't have a lump sum but we do have years of service and/or age to consider.
One way my former employer handled it was to use (age + years of service) as its threshold. In that way, older employees with less service were held harmless (which had to help with "disparate impact" lawsuits) and younger, longer-term loyal employees were also held harmless. You might suggest something similar - the total of 70 seemed about right when we did the calcs...

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tooluser
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Re: Pension Freeze - What did you do?

Post by tooluser » Sun Oct 15, 2017 6:14 pm

Sandi_k wrote:
Fri Oct 13, 2017 7:09 pm
One way my former employer handled it was to use (age + years of service) as its threshold. In that way, older employees with less service were held harmless (which had to help with "disparate impact" lawsuits) and younger, longer-term loyal employees were also held harmless. You might suggest something similar - the total of 70 seemed about right when we did the calcs...
Another good idea - thanks. Our plan does not use age+years directly, but they are factors in the accumulation and distribution of benefits. Certainly those who are, say 10 years out from retirement after many years at the company, have had their expectations diminished to a far greater degree than other groups.

If there is any bright lining in my situation, it's that the value proposition going forward is diminished less if one retires early. That might make the choice of retirement age a little easier. And I am thankful that I still appear to have a choice.
Had we come a little later, we'd have seen a better crater. -- M.P., Sept 1886 (on Kilauea)

cherijoh
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Re: Pension Freeze - What did you do?

Post by cherijoh » Sun Oct 15, 2017 7:33 pm

tooluser wrote:
Fri Oct 06, 2017 6:44 pm
My company has stated it will freeze the pension plans at the end of the next fiscal year. I am wondering what others did in similar situations. It's a hard freeze where they will maintain any vested benefit but move onto a completely new defined contribution plan for all. The new plan is somewhat generous by today's standards, but is an extreme blow to those several years out from retirement.

I am working through the DABDA cycle - denial, anger, bargaining, depression, acceptance. I knew this could happen, so denial was not an issue. I am in the anger stage but do not believe there is any chance at bargaining, so there is no need for depression, only acceptance of what is and will be. Plans for the future (retirement) now likely stretch out a couple of more years, best case.

The company will replace the three pension plans we have with a defined contribution plan of (as far as I can tell) about half the value of my pension plan. I am 52 so have 3 more years to claim the earliest retirement benefit. The benefit is reduced for early retirement, so I may have worked longer despite the freeze, though I would formerly have had "enough" to retire at age 55 (thanks to good savings habits).

I''m pretty sure that no company has ever reversed the decision on this. It's contemptible that they are balancing the books on the backs of their most experienced and loyal employees. Are there any statistics on how likely it is for a company that makes such drastic cuts to go out of business entirely? I wonder if they will even fulfill the new obligations for any length of time. It's extremely dismaying that this decision was made in times of good investment returns for the pension plan.
My sympathy to the OP. That is a tough pill to swallow.

You might find this article about IBM's pension conversion more than a decade ago of interest. They were early adopters of freezing the DB pension plan for current employees and caught a lot of flack for it at that time.

My former megacorp employer killed the DB pension plan around 2002 when the handwriting was on the wall about DB plans, but initially they left it in place for any employees who had already been enrolled in it. New employees after the announcement was made would be put in a defined contribution (i.e., cash balance) plan. I thought that decision was fair since new employees would know upfront what they were getting into and current employees weren't losing a benefit upon which they were counting.

Several years later my ex-employer sold the site where I worked and I took a separation package (in lieu of a transfer) which effectively froze my pension benefit about 10 years before I was eligible to start collecting it (at 80% of the frozen benefit) or 15 years before I could collect the full frozen benefit. I have been fortunate that inflation has been very low since my benefits were frozen - the purchasing power hasn't been eroded as much as I feared would happen. (I'm still working and haven't started drawing this pension but will do so in the next year or two).

I have stayed in touch with some of my former coworkers who remained at the company. A couple of years ago the company froze the plan for the current employees who were (up to that point) still accruing benefits - basically what has happened to the OP. They gave these employees a one-time voluntary contribution to their 401k (with the amount based on their salary and years of service). My friends said that the handwriting was on the wall and they knew the DB pension was on borrowed time. Fortunately, my former employer had always had a good 401k plan and an excellent company match.

My current employer had done away with their DB pension long before I joined the company. I did get a few years under the defined contribution plan before they froze that plan too and replaced it with a voluntary contribution to the 401k plan. The defined contribution plan isn't accruing any additional contributions but continues to accrue earnings. The defined benefit pension was equivalent to 4% of salary/year (with earnings accrued at the equivalent yield of 10-yr treasuries) while the voluntary contribution to the 401k is 2% of salary (for those with up to 10 years of service) or 3% (for those with more than 10 years of service). This is in addition to the company match.

I personally have always felt the burden of saving for my retirement was squarely on my shoulders, but i know a lot of people have trusted their employer to do right by them and have been disappointed.

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Re: Pension Freeze - What did you do?

Post by cherijoh » Sun Oct 15, 2017 7:49 pm

Uncle Pennybags wrote:
Fri Oct 06, 2017 8:22 pm
tooluser wrote:
Fri Oct 06, 2017 7:56 pm
I looked up "represented employee" as a new term to me- I am one, but our union is not very powerful, so I expect nothing from them but pointing out the discrepancy between management's words and actions.
You have a contract and federal law to protect you. No one can take away what you have vested in a pension plan. As for health care or other benefits a company can pull them at anytime if there is no contract.
No they can't take away accrued pension benefits. But they can considerably reduce the trajectory of growth. DB pensions generally followed a formula with three factors multiplied together:
  • Years of Service
  • Percentage factor (usually somewhere between 1 and 2%)
  • Some measure of final salary (e.g. average of top 3 or last 3 yrs)
So most of the growth in benefits for DB plans was in the last 10 years before retirement. Defined contribution plans grow in a much more linear fashion. So older workers lose out big time. Younger workers like defined contribution plans because they are portable and can be rolled into an IRA to continue growing if you leave the company.

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Re: Pension Freeze - What did you do?

Post by cherijoh » Sun Oct 15, 2017 7:54 pm

tooluser wrote:
Fri Oct 06, 2017 8:47 pm
123 wrote:
Fri Oct 06, 2017 8:32 pm
Some organizations do pension freezes to encourage a higher level of attrition, often primarily older workers. It's easier if people leave on their own without any layoffs. They aren't doing it to benefit employees.
Not quite "on their own", but your point is valid. My company has engaged in such "clearing of the dead wood" in the past (layoffs). But this decision harms the excellent along with the mediocre. It seems poorly reasoned and deliberately punitive for reasons that have not been revealed.
If your company is publically traded, Wall Street will reward your company with a an increase in its stock price which will directly line the pockets of the CEO, CFO, etc. That is motivation enough in this day and age of the haves and have nots.

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Re: Pension Freeze - What did you do?

Post by cherijoh » Sun Oct 15, 2017 8:06 pm

lynneny wrote:
Fri Oct 06, 2017 10:52 pm
I'm sorry to hear about your pension, OP.

I was very upset, too, when this happened at our company. In 2004, our company closed the pension plan to new employees, and had the rest of us choose whether to stay in the pension plan, or switch to a rewards program in which the company would put between 2% and 6% of our salaries into a retirement account for us each year. Long-time employees like me chose to stay in the pension plan. A few years later, the company froze the pension plan for everyone. The amount earned up until now is guaranteed, but no COLA, and when I start collecting it at 65, it'll be about half the amount I'd get if plan hadn't been frozen.

In the meantime, the company has cut all our other benefits except health insurance (high-deductible plan only). No more year-end bonuses or profit sharing. And last year they ended that 2%-6% contribution to retirement accounts.

As a result, I'm saving more (maxing out HSA, Roth, and 401(k)), working longer (I'm 61) and planning to move to a LCOL area when I do retire. That's really all I can do. The other cut that really hurts is that severance was just slashed from max of one year's salary to a max of 20 weeks. I've survived multiple rounds of layoffs, but assume my turn will come, and I was counting on that year's pay to be my transition to retirement. Just when you think the company can't find anything else to cut, they do.
Wow! That is a bitter pill to swallow. Cynically I have to wonder if the C-suite employees took anywhere near the hit that the rest of you have.

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tooluser
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Re: Pension Freeze - What did you do?

Post by tooluser » Fri Apr 20, 2018 9:50 pm

So here is how it has turned out! :shock:

Lots of the severely affected people (my peer group) muttered under their breaths for a few months. Grouping, talking, mostly complaining, then analyzing, then wondering what to do.

The company made what I would call a misstep, trying to explain the "changes" (more honestly: massive cuts) to the pension plan in corporate doublespeak, meeting randomly with a few groups but not everyone affected, raising the ire of many.

Union membership increased by about 25%, which was still a rather small percentage of the total employee population. Several folks really stepped up and developed reasonable, detailed alternatives to the company proposal. I wish I had had the time to join them, but I added as much as I could to the conversation.

A Federal mediator was called in to facilitate bargaining between the union and the company.

The bargaining resulted in a significant positive adjustment for the employees. Basically 2/3 pension accumulation for five years for one of the defined benefit pension plans covering most of the oldest/longest-tenure employees (then cut-over to a defined contribution plan), and a 25-50% increase in company contributions for the other defined contribution plans for employees of next longest tenure. No change for employees of least tenure. Also good news was the retroactive reinstatement of raises that had been put off due to the lack of a contract with the union.

The net effect was to bridge the longest-tenured employees to the new system over the next five years, while increasing benefits for all but the newest employees. That seemed fair enough to most, judging by the union vote percentages. We'll see if there's any fallout going forward. The employees are certainly getting less going forward, but not as much less now.

I have renewed and increased respect for my coworkers. It was worth some effort for all involved.
Had we come a little later, we'd have seen a better crater. -- M.P., Sept 1886 (on Kilauea)

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Re: Pension Freeze - What did you do?

Post by Valuethinker » Sat Apr 21, 2018 7:29 am

tooluser wrote:
Fri Oct 06, 2017 7:56 pm


The reasons for the freeze appear to be much more along the lines you state - reducing corporate uncertainty - than any real and detectable crisis. That's where the anger comes from. It appears to be largely punitive against good people, rather than fiscally necessary. A decision based on scary and shadowy monsters somewhere on the road ahead.
Then that is good risk management.

Risk is a huge part of Board work now, and Corporate Reporting. Shareholders sue if companies fail to disclose important risks (see recent cases re Exxon and Chevron and Shell).

This is a huge contingent liability on the balance sheet of a company-- the possibility of a future deficit on the fund. No Board can just sit with that risk-- they have to do something about it. At the heart, this is about financial risk for the company and its shareholders and creditors - and it's the job of the Board to consider it. With the public sector, a future liability will/ could fall on taxpayers, and the legal responsibilities are less strictly drawn, as I understand it.

There are too many examples of companies going bankrupt and pensions of employees being sharply cut back. The PBGC is in something of a death spiral. Also the strategic use of Chapter 11 and other bankruptcy techniques to shed employer liability for FS/DB schemes and retiree healthcare benefits.

They are simply being prudent. They have worked out that the Final Salary/ Defined Benefit scheme is not valuable for attracting new employees, and retaining existing long serving employees may not be a priority. People tend to value salary more than this kind of benefit (that's called Hyperbolic Discounting, and it's a known property of human financial behaviour).

In truth, if they didn't do this, a hostile bidder, or a PE firm like Cerebrus, could well take them over, sack the Board, and do it anyway. Boards are aware of these pressures. if a firm is family-controlled or private, then it's a big financial risk for the owning family or controlling shareholders.

So this was inevitable. I can't think of a private sector organization that would not seek to do this.

BTW investment returns have been good, but because liabilities are discounted by (the going corporate bond rate - have to check what USA rules are), a lower discount rate => higher liability => potentially bigger deficit. From the Report & Accounts or SEC 10K, what does it say about pension fund deficits?

One solution is Career Average Salary DB schemes. However for various reasons these don't seem to be popular in America. For one thing it doesn't solve the liability problem.

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Re: Pension Freeze - What did you do?

Post by Valuethinker » Sat Apr 21, 2018 7:31 am

tooluser wrote:
Fri Apr 20, 2018 9:50 pm
So here is how it has turned out! :shock:

Lots of the severely affected people (my peer group) muttered under their breaths for a few months. Grouping, talking, mostly complaining, then analyzing, then wondering what to do.

The company made what I would call a misstep, trying to explain the "changes" (more honestly: massive cuts) to the pension plan in corporate doublespeak, meeting randomly with a few groups but not everyone affected, raising the ire of many.

Union membership increased by about 25%, which was still a rather small percentage of the total employee population. Several folks really stepped up and developed reasonable, detailed alternatives to the company proposal. I wish I had had the time to join them, but I added as much as I could to the conversation.

A Federal mediator was called in to facilitate bargaining between the union and the company.

The bargaining resulted in a significant positive adjustment for the employees. Basically 2/3 pension accumulation for five years for one of the defined benefit pension plans covering most of the oldest/longest-tenure employees (then cut-over to a defined contribution plan), and a 25-50% increase in company contributions for the other defined contribution plans for employees of next longest tenure. No change for employees of least tenure. Also good news was the retroactive reinstatement of raises that had been put off due to the lack of a contract with the union.

The net effect was to bridge the longest-tenured employees to the new system over the next five years, while increasing benefits for all but the newest employees. That seemed fair enough to most, judging by the union vote percentages. We'll see if there's any fallout going forward. The employees are certainly getting less going forward, but not as much less now.

I have renewed and increased respect for my coworkers. It was worth some effort for all involved.
Thank you for that.

An interesting comment re the effect of being unionized, even to a small extent.

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Re: Pension Freeze - What did you do?

Post by mouses » Sat Apr 21, 2018 7:38 am

basspond wrote:
Sun Oct 08, 2017 6:04 pm
tooluser wrote:
Fri Oct 06, 2017 8:03 pm
.... For many years, and even just a month ago, the CEO stood up and reported in person to the employees that we are excellent workers, our customers love us, and we have a bright future. Apparently they were always lying. Not really a surprise, but what was the point of the deception?
And I am sure the CEO and the management team are getting hefty bonuses for cutting costs. Been on the receiving end of those cost cutting measures. Hope you can retire on your terms.
Welcome to the world of the 1% vs. the 99%. As they say, How do you know X is lying? His mouth is open.

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Re: Pension Freeze - What did you do?

Post by TresBelle65 » Sat Apr 21, 2018 9:17 am

I had 16 years in when Megacorp did it to me (all of us), along with killing any healthcare benefits in retirement for anyone under the age of 50.

What did I do?

Started coming in later each day and leaving earlier.

Stopped caring about the outcome of almost anything related to the company.

Started spending quite a bit of time at work involved in non-work related activities.

Started volunteering for a layoff every 6 months when the offers came up. They never laid me off, would have been an expensive package. They did not try to fire me as their case would have been relatively weak and the outcome of that expensive.

Hung in there for 4 more years total, improved the other areas of my life, then took a much better offer.

This same scenario played out across many employees. I assumed Megacorp planned for that too.

It's all good now.

.

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Re: Pension Freeze - What did you do?

Post by Valuethinker » Sat Apr 21, 2018 11:17 am

mouses wrote:
Sat Apr 21, 2018 7:38 am
basspond wrote:
Sun Oct 08, 2017 6:04 pm
tooluser wrote:
Fri Oct 06, 2017 8:03 pm
.... For many years, and even just a month ago, the CEO stood up and reported in person to the employees that we are excellent workers, our customers love us, and we have a bright future. Apparently they were always lying. Not really a surprise, but what was the point of the deception?
And I am sure the CEO and the management team are getting hefty bonuses for cutting costs. Been on the receiving end of those cost cutting measures. Hope you can retire on your terms.
Welcome to the world of the 1% vs. the 99%. As they say, How do you know X is lying? His mouth is open.
Senior execs are a bit like sports professionals-- they have very little time to make their pile. The average tenure of an S&P500 CEO is not long now (I have a number like 3.5 years in my head). In fact they do use agents to negotiate their packages, just like sports professionals.

The pressure to produce the numbers is intense.

Look at something like Amazon. The whole company is configured on measuring performance. From the lowliest distribution centre worker on up.

Bezos of course is the Founder and largest shareholder. His job is not in danger.

But it gives you an idea of what competing with Amazon is like.

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Re: Pension Freeze - What did you do?

Post by UpsetRaptor » Sat Apr 21, 2018 11:45 pm

FrugalInvestor wrote:
Fri Oct 06, 2017 10:35 pm
A very important conclusion that I came to during difficult times within my company was that it does no good to get all worked up over things you can't control. All it will do is ruin your attitude and probably your reputation within the company. The company may come out the other end financially stronger and even better led. If that's the case it may be a good place to work even though the pension plan isn't as attractive. Outward attractiveness isn't necessarily a plus if the plan or the company isn't sustainable as a result. Hang in there for awhile and see how things shake out. Let others throw tantrums and leave the company and maybe there will be more room for advancement for you with a stronger company in the end.
+1

Very good advice for any employee, pensioned or not.

I've had a nice career run for many years with a company where the rumormill often turns to doom-and-gloom. Maybe the naysayers will be right someday, maybe not. Maybe I'll have reached FI by then and won't care. I'll just keep being a good productive employee in the meantime, it's worked out great so far. Ah, retention bonuses... :sharebeer

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Re: Pension Freeze - What did you do?

Post by basspond » Sun Apr 22, 2018 4:33 am

student wrote:
Sat Oct 07, 2017 7:48 am
To me, this is somewhat inevitable. In the 1940's, life expectancy is about 63. Now, it is about 79. They have to put more money in, cut benefits, and/or raise retirement age. My personal view is that the only reliable pension is from the fed. The rest of us have to LBYM and save as much as possible.
My company used to support a tool you could put in your information, including discount rate, to get an estimated lump sum amount. When I tried using it the current discount rate was 2 points lower (which increased the lump sum) then what the tool allowed.

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Re: Pension Freeze - What did you do?

Post by Broken Man 1999 » Sun Apr 22, 2018 6:16 pm

My company froze the management pension in 2006. Fortunately for me I still had 33 years of service by 2006, and, frankly, made out well when I took a lump sum benefit when the pension interest rate was so very low, in August of 2015.

I probably would have retired earlier, and missed such an awesome interest rate multiplier.

Life has some strange twists, for sure.Took an generous lump sum and never looked back.I had long gotten rid of all my company's stock.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

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Re: Pension Freeze - What did you do?

Post by Portfolio7 » Sun Apr 22, 2018 6:40 pm

I'm kind of surprised when I hear about pensions going away, I thought that was a done deal for most companies. Ours went away over ten years ago... of course, I'd be retiring in about 4 years if it hadn't, around age 55, but instead it seems likely I'll work another 9 or 10, unless DW's business grows profitability. I do have retained credit, so I will have a pension, but it's replacing about 3% of my income, not 30%. In the case of my mega-corp there were lawsuits, and mega-corp lost one or two of them, so there were revisions... but it made little difference unless you were on the cusp of retirement. We also got a boost to our 401K matching, so if I contribute at least 7% my company adds about 7%, and this does help of course. We always saved about 14-15% annually starting in our mid to late 20's, so we're not hurting... but the loss of pension certainly slowed us down several years.
An investment in knowledge pays the best interest.

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Re: Pension Freeze - What did you do?

Post by scrabbler1 » Sun Apr 22, 2018 7:02 pm

youdiditr2 wrote:
Fri Oct 06, 2017 7:48 pm
My company did the same thing 2 years ago. We had a DBPP and they got rid of it and turned it into a Defined Cash Balance Plan. % is based on age.

They contribute 5% to the DCBP and the rate of return is based on 30 T Bonds...so not getting much with record low interest rate.

We also had a Health Insurance plan for Retirees, they got rid of that too. The head of HR said, "You do not need Corporate Health Insurance in retirement because Obamacare will never go ahead and is cheaper than the Corporate plan." She retired 1 year later after annoucing the news to us.
Obamacare will never go away!
This sounds something like what my former company did at the end of 2001. They grandfathered into the existing plan employees who met a certain combination of age and seniority, while freezing any accumulated pension benefit for everyone else. Any new hires starting in 2002 would not be eligible for a pension. Those new hires and anyone who got their pension frozen began to accumulate benefits in a cash balance plan. (Starting in 2005, they ended the cash balance plan for new hires while grandfathering all CB enrollees.)

Also starting in 2002 they began phasing out retiree health insurance benefits. Anyone already retired would have the company subsidy frozen while the employee would pick up their share plus any overall increase. New retirees in 2002 would get no retiree health benefits. But they did this in shady fashion, announcing this at the very end of November, 2001, while closing up the HR office for the day by the time employees returned from the big meetings announcing these changes. Employees had to give one month's notice in order to claim retiree benefits, so the rush of wannabe-retirees were screwed because they wouldn't be able to file their notice until December 1st. They fired back and threatened a lawsuit, and were allowed to retire with their health insurance benefits intact.

Freezing my pension didn't have a big impact on me personally because I had just switched to working part-time, so my pension would not have risen by much. The freeze did remove any incentive to keep working longer, as the CB plan wasn't going to give me very much. I left the company in late 2008 and retired at 45.

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Re: Pension Freeze - What did you do?

Post by fourwheelcycle » Sun Apr 22, 2018 7:32 pm

I worked for the same company from age 31 until I retired at age 60. When I began they had a pension with a years of service formula that provided about 50% of average high five pay after twenty-five years, with small incremental increases for further years of service. When I was about 42 they announced they were changing the formula, with the result that 25 years of service would provide only about 34% of average high five pay, with the same small incremental increases for further years of service. The change applied retroactively to all employees under age 50. Employees over age 50 were allowed to stay with the previous formula.

I ended up retiring at age 60, with 29 years of service and a pension equal to about 36% of my average high five pay. The year before I retired they ended the pension for all new employees, with new employees offered only a defined contribution benefit. Five years after I retired they ended the pension for all employees, regardless of age. Existing employees were allowed to keep their calculated pensions up to that point, but they began to receive only the defined contribution plus match for their remaining years of service.

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Re: Pension Freeze - What did you do?

Post by Helo80 » Sun Apr 22, 2018 7:32 pm

mouses wrote:
Sat Oct 07, 2017 2:59 am
People buy junk products. Just consider the level of trash sold nowadays compared to the quality of products years ago,

This is a tangent compared to the overall theme of the thread, but I don't personally buy this argument, and I think there is some revisionist history going on. There is no way you could have known this, but you have unlocked one of my pet peeves where I get on my soapbox and preach the gospel.

We are seeing better and better products that are being made cheaper all the time.

Blender Pricing
For example, I have a $10 after rebate Black & Decker blender. Was it made in China? Absolutely. Is the quality sort of bad? Yup. But, it was $10 USD. Sure, I can buy a Made in America Vitamix or Blendtec blender for 30x + the price, but I honestly use a blender so little that I would probably go without one. I wish there were a happy medium to buy an inexpensive blender Made in America with an American motor for like $50, but that may not be feasible.

The HP Laserjet printers

I have a refurbished HP Laser printer I paid $50 for, with shipping, from Newegg.com. Is it made in China? Yup. Is the quality good? It's pretty dang decent. Is the build quality the same as the ancient/historic HP Laserjets? Heck no. Much cheaper plastic, and I'm not entirely sure I will be able to find parts for it when it breaks. I'm also sure it will not last nearly as long as the infamous HP Laserjet printers of yesteryears that became the standard in school and university classrooms and businesses.... some of which are still in operation to this day just chugging along.

What people do not remember is that these HP Laserjet printers cost a fortune. Those printers were around $1500 to $2000

The first HP Laserjet printer released in 1984: https://www.cartridgesave.co.uk/news/th ... n-and-now/
Per that link... 1750 British pounds.

Microwaves
Some of you all are certainly old enough to remember microwaves and how much those cost when they were first introduced. I bought a little 1100 watt GE microwave for like $22 as I was at Lowe's about 9 years ago, and it was on clearance or something. Any of y'all that have had to replace microwave parts know that a magnatron is more than that --- even those annoying safety door switches can be pricey!

I believe my aunt has her original microwave from when she got married 40+ years ago. It may have been close to a thousand dollars (or more). Anyways, it's WAY, WAY more than what a good quality microwave would be at Home Depot now. Yes, the microwave still works, albeit it's slow as heck!

Some stuff... yes, quality has absolutely gone down hill. But more often than not, if you're willing to open your pocketbook, you can buy high quality stuff still. We live in a very different world from Post-WWII America when American manufacturing had its glory days. I think we are still the number one manufacturing economy... even slightly ahead of China.

"John D. Rockefeller certainly had power and fame; he could not, however, live as well as my neighbors now do. His unparalleled fortune couldn't buy what we now take for granted, whether the field is—to name just a few—transportation, entertainment, communication or medical services." - Warren Buffett
Last edited by Helo80 on Sun Apr 22, 2018 7:51 pm, edited 2 times in total.

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Earl Lemongrab
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Re: Pension Freeze - What did you do?

Post by Earl Lemongrab » Sun Apr 22, 2018 7:44 pm

Megacorp froze the pension a few years back. They substituted extra contributions (non-matching) to the 401(k). The first year was 9% of salary, ramping down each year until a base level depending on years of service. For older folks it would be 5%. I didn't hang around that long.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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