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
Learn economical motion of delivery from a variety of angles, then lengthen the distance gradually. -- Bruce Lee

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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.
Learn economical motion of delivery from a variety of angles, then lengthen the distance gradually. -- Bruce Lee

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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.
Learn economical motion of delivery from a variety of angles, then lengthen the distance gradually. -- Bruce Lee

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.
Learn economical motion of delivery from a variety of angles, then lengthen the distance gradually. -- Bruce Lee

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.

cherijoh
Posts: 4041
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

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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