Pension Freeze - What did you do?

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tooluser
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Pension Freeze - What did you do?

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

mouses
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Re: Pension Freeze - What did you do?

Post by mouses » Fri Oct 06, 2017 6:47 pm

Been there, had that done to me. In my case it was a MegaCorp that was doing well and is still in business a couple of decades later.

Dottie57
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Re: Pension Freeze - What did you do?

Post by Dottie57 » Fri Oct 06, 2017 6:54 pm

I am very sorry to hear this.

I kind of hate to say this, but have you thought of contacting a lawyer or contacting your state's department of labor. Too me it seems too good for the company to be able to not follow through on what is essentially part of your payment for work.

What state is this occuring in?

Take a look

http://www.bankrate.com/retirement/what ... ezes-over/

http://www.groom.com/media/publication/ ... s_2014.pdf

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sabtastic
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Re: Pension Freeze - What did you do?

Post by sabtastic » Fri Oct 06, 2017 7:06 pm

There is nothing TO do!! :(

This decision was made essentially to save the company as likely they were hemorrhaging and had to stop the bleeding. It is happening everywhere. Even the UC is now pushing defined contribution plans. That is why so many recommend not counting pensions when calculating retirement benefits.

Curious though, are they going to give any options for a payout/rollover? For those that still may have decades of work ahead of them, it may be a better option than a "guaranteed" pittance. I only ask because I was just vested at my company and if they offered I would be very tempted to roll the whole thing into a 401k. Obviously it would be worth less than a "guaranteed" lifetime benefit, but at least I know I could keep the money...

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Re: Pension Freeze - What did you do?

Post by tuningfork » Fri Oct 06, 2017 7:19 pm

My Megacorp froze its pension a long time ago when it was having financial difficulties. The pension contributions were replaced by a contribution to a tax-deferred account, but that contribution was stopped after a few years. The company got in financial trouble again, filed chapter 11, and the PBGC took over the pension fund. I retired before the bankruptcy filing and, knowing the company was on shaky ground, took my pension as a lump sum. It worked out fine for me since I have always saved and never actually counted on having the pension. I was (and still am) bitter that the company halted benefits to its experienced employees while senior leadership paid themselves huge bonuses for "saving" the company.

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Tycoon
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Re: Pension Freeze - What did you do?

Post by Tycoon » Fri Oct 06, 2017 7:23 pm

I'm in the same situation. I'm going to retire at 55.
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Uncle Pennybags
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Re: Pension Freeze - What did you do?

Post by Uncle Pennybags » 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.

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Re: Pension Freeze - What did you do?

Post by LadyGeek » Fri Oct 06, 2017 7:34 pm

This thread is now in the Personal Finance (Not Investing) forum (pension).

sabtastic, Welcome!
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tooluser
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Re: Pension Freeze - What did you do?

Post by tooluser » Fri Oct 06, 2017 7:40 pm

sabtastic wrote:
Fri Oct 06, 2017 7:06 pm
There is nothing TO do!! :(

This decision was made essentially to save the company as likely they were hemorrhaging and had to stop the bleeding. It is happening everywhere. Even the UC is now pushing defined contribution plans. That is why so many recommend not counting pensions when calculating retirement benefits.

Curious though, are they going to give any options for a payout/rollover? For those that still may have decades of work ahead of them, it may be a better option than a "guaranteed" pittance. I only ask because I was just vested at my company and if they offered I would be very tempted to roll the whole thing into a 401k. Obviously it would be worth less than a "guaranteed" lifetime benefit, but at least I know I could keep the money...
There was never a lump sum option for any of the plans except for a net present value of $10,000 or less. No conversions have been proposed. The $10k NPV limit would be paid out only upon separation from the company.
Learn economical motion of delivery from a variety of angles, then lengthen the distance gradually. -- Bruce Lee

youdiditr2
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Re: Pension Freeze - What did you do?

Post by youdiditr2 » 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!

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Re: Pension Freeze - What did you do?

Post by snarlyjack » Fri Oct 06, 2017 7:50 pm

Tooluser,

I' am sorry to hear of your pension.

I think the faster you can get to acceptance the better
for you & your family. What I would do is pick 1 fund.
Something like the LifeStrategy fund, that is very diversified
with a low ER. Then, I put would as much money into it
as possible. I would not let the company get me down (psychologically)
and I would walk out of there at retirement with thousands &
thousands of dollars in my 1 Vanguard account. Then, the day after
I retired I would tell them to kiss off...

The reason I would pick the LifeStrategy fund is it's well diversified,
with a low ER & it will pick up anything that moves in the world.
You can pick your own AA. I would cram as much money into it
as possible. You need to make up for lost time.

Welcome to acceptance! It's time to get moving & grooving...

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tooluser
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Re: Pension Freeze - What did you do?

Post by tooluser » 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.
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 » Fri Oct 06, 2017 7:58 pm

tooluser wrote:
Fri Oct 06, 2017 7:40 pm
sabtastic wrote:
Fri Oct 06, 2017 7:06 pm
There is nothing TO do!! :(

This decision was made essentially to save the company as likely they were hemorrhaging and had to stop the bleeding. It is happening everywhere. Even the UC is now pushing defined contribution plans. That is why so many recommend not counting pensions when calculating retirement benefits.

Curious though, are they going to give any options for a payout/rollover? For those that still may have decades of work ahead of them, it may be a better option than a "guaranteed" pittance. I only ask because I was just vested at my company and if they offered I would be very tempted to roll the whole thing into a 401k. Obviously it would be worth less than a "guaranteed" lifetime benefit, but at least I know I could keep the money...
There was never a lump sum option for any of the plans except for a net present value of $10,000 or less. No conversions have been proposed. The $10k NPV limit would be paid out only upon separation from the company.
How in the world can a pension have a npv of 10k? How long have you worked for the company and what would you have received on annual basis?

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tooluser
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Re: Pension Freeze - What did you do?

Post by tooluser » Fri Oct 06, 2017 8:03 pm

Dottie57 wrote:
Fri Oct 06, 2017 6:54 pm
I am very sorry to hear this.

I kind of hate to say this, but have you thought of contacting a lawyer or contacting your state's department of labor. Too me it seems too good for the company to be able to not follow through on what is essentially part of your payment for work.

What state is this occuring in?

Take a look

http://www.bankrate.com/retirement/what ... ezes-over/

http://www.groom.com/media/publication/ ... s_2014.pdf
Thank you for the links - this is in California.

The pension documents have always clearly stated that the plan could be changed or revoked at any time, so I doubt there is any legal recourse. It's just very disappointing. 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?
Learn economical motion of delivery from a variety of angles, then lengthen the distance gradually. -- Bruce Lee

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Uncle Pennybags
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Re: Pension Freeze - What did you do?

Post by Uncle Pennybags » 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.

When my former employer did away with defined benefit plans they increased the company match in the 401k considerably. You will do just fine if you invest the Boglehead way. It's like taking the lump sum.

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tooluser
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Re: Pension Freeze - What did you do?

Post by tooluser » Fri Oct 06, 2017 8:27 pm

snarlyjack wrote:
Fri Oct 06, 2017 7:50 pm
Tooluser,

I' am sorry to hear of your pension.

I think the faster you can get to acceptance the better
for you & your family. What I would do is pick 1 fund.
Something like the LifeStrategy fund, that is very diversified
with a low ER. Then, I put would as much money into it
as possible. I would not let the company get me down (psychologically)
and I would walk out of there at retirement with thousands &
thousands of dollars in my 1 Vanguard account. Then, the day after
I retired I would tell them to kiss off...

Welcome to acceptance! It's time to get moving & grooving...
Thank you. I agree - having a chip on one's shoulder does no good and can be a heavy burden. To some extent I am just venting, although avenues of redress are being pursued (an unlikely but not zero chance of success). What were "bronze handcuffs" are now just handcuffs. I have too much invested to just leave at my age, and previous assurances of future total compensation are debased to the reality of the human condition. I am not dead in the water but am significantly slowed.

LifeStrategy funds are almost exactly what I have gone to in the past couple of years, thanks to the Bogleheads and Taylor Larimore in particular. My asset allocation does not fit one fund, but they reduce the noise and are much appreciated in my portfolio.
Learn economical motion of delivery from a variety of angles, then lengthen the distance gradually. -- Bruce Lee

runner3081
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Re: Pension Freeze - What did you do?

Post by runner3081 » Fri Oct 06, 2017 8:28 pm

Dottie57 wrote:
Fri Oct 06, 2017 6:54 pm
Too me it seems too good for the company to be able to not follow through on what is essentially part of your payment for work.
http://www.groom.com/media/publication/ ... s_2014.pdf
Wrong, this is a benefit not pay. There is nothing he can do, a company can start or stop benefits at anytime.

Also, he is not losing anything, all earned credits will stand.

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tooluser
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Re: Pension Freeze - What did you do?

Post by tooluser » Fri Oct 06, 2017 8:29 pm

Dottie57 wrote:
Fri Oct 06, 2017 7:58 pm

How in the world can a pension have a npv of 10k? How long have you worked for the company and what would you have received on annual basis?
My point exactly - that's a low amount that only short-timers would amass. I'm sure my NPV is much higher and I cannot receive a lump sum.
Learn economical motion of delivery from a variety of angles, then lengthen the distance gradually. -- Bruce Lee

123
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Re: Pension Freeze - What did you do?

Post by 123 » 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.
The closest helping hand is at the end of your own arm.

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tooluser
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Re: Pension Freeze - What did you do?

Post by tooluser » Fri Oct 06, 2017 8:43 pm

runner3081 wrote:
Fri Oct 06, 2017 8:28 pm
Also, he is not losing anything, all earned credits will stand.
Yes, this is factually correct. For now.

Psychologically, it diminishes each and every employee, and therefore the company as a whole. No real progress is made, and the slope is downward. As is acknowledged at bogleheads.org, the psychology of finance is at least as important as the mathematics. So it goes for the workplace as well.

Ultimately I am an optimistic person, but one must deal with the fallout.
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 » 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.
Learn economical motion of delivery from a variety of angles, then lengthen the distance gradually. -- Bruce Lee

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

Post by 2pedals » Fri Oct 06, 2017 8:47 pm

I have a very similar situation, my pension will "partially freeze" (no more service years added to formulation) at the end to 2018. I am 58 and plan to retire after the partial freeze. Many of my colleagues are the planning the same. Large difference in benefit accumulation before and after the partial freeze. I am sorry for you and If I was younger with less savings and accumulated pension I would have been unhappy.

student
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Re: Pension Freeze - What did you do?

Post by student » Fri Oct 06, 2017 8:50 pm

Since you are a saver, it may be to your advantage that future contributions are now in your name.

runner3081
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Re: Pension Freeze - What did you do?

Post by runner3081 » Fri Oct 06, 2017 8:53 pm

tooluser wrote:
Fri Oct 06, 2017 8:43 pm
runner3081 wrote:
Fri Oct 06, 2017 8:28 pm
Also, he is not losing anything, all earned credits will stand.
Yes, this is factually correct. For now.

Psychologically, it diminishes each and every employee, and therefore the company as a whole. No real progress is made, and the slope is downward. As is acknowledged at bogleheads.org, the psychology of finance is at least as important as the mathematics. So it goes for the workplace as well.

Ultimately I am an optimistic person, but one must deal with the fallout.
Could be worse (yes, I feel your pain). When I worked in HR at a medical group under a hospital, we (as in parent company forced the med group) gave employees the option of keeping their pension or moving to a DC plan with a generous base+match contribution.

...2 years later? The pension was frozen for all, regardless of the earlier choice.

Also, look at this way: Your chances of receiving something from the company when you retire just went up significantly. It is very possible that if the pension plan continued, the unfunded liability could cause the company to dump it off to the PBGC and you end up with pennies on the dollar, suddenly, without having warning and being able to plan around it.

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Re: Pension Freeze - What did you do?

Post by Dottie57 » Fri Oct 06, 2017 8:55 pm

runner3081 wrote:
Fri Oct 06, 2017 8:28 pm
Dottie57 wrote:
Fri Oct 06, 2017 6:54 pm
Too me it seems too good for the company to be able to not follow through on what is essentially part of your payment for work.
http://www.groom.com/media/publication/ ... s_2014.pdf
Wrong, this is a benefit not pay. There is nothing he can do, a company can start or stop benefits at anytime.

Also, he is not losing anything, all earned credits will stand.

Just a nit. My employer talks about total compensation. (No defined benefits package). The 401k is part of the cmpensation package for employees. My compensation for working is less if I don't receive the benefits,

runner3081
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Re: Pension Freeze - What did you do?

Post by runner3081 » Fri Oct 06, 2017 8:57 pm

Dottie57 wrote:
Fri Oct 06, 2017 8:55 pm
runner3081 wrote:
Fri Oct 06, 2017 8:28 pm
Dottie57 wrote:
Fri Oct 06, 2017 6:54 pm
Too me it seems too good for the company to be able to not follow through on what is essentially part of your payment for work.
http://www.groom.com/media/publication/ ... s_2014.pdf
Wrong, this is a benefit not pay. There is nothing he can do, a company can start or stop benefits at anytime.

Also, he is not losing anything, all earned credits will stand.

Just a nit. My employer talks about total compensation. (No defined benefits package). The 401k is part of the cmpensation package for employees. My compensation for working is less if I don't receive the benefits,
Most employers list health benefits in there as well, again, not required. I understand it is a takeaway, but it is a voluntary offering at the end of the day.

It is not necessarily a bad thing for employees who may not be thrilled with the company. There are no longer any golden handcuffs holding them on-board :)

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tooluser
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Re: Pension Freeze - What did you do?

Post by tooluser » Fri Oct 06, 2017 9:06 pm

student wrote:
Fri Oct 06, 2017 8:50 pm
Since you are a saver, it may be to your advantage that future contributions are now in your name.
In some sense, maybe. My initial calculations have indicated a significant loss in NPV. At least a couple of years in savings and earnings. I have to tune that calculation up to really know. If the stock market keeps going like it has (above average returns) then I'll be fine. If not, it means more years of waiting for the pension to become available and more remunerative by age.

If I were younger I would appreciate the lack of handcuffs much more. Time to compound earnings. But that was not the deal when I started, nor ever until the last few days. The expected value is a worse deal going forward.
Learn economical motion of delivery from a variety of angles, then lengthen the distance gradually. -- Bruce Lee

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Re: Pension Freeze - What did you do?

Post by Morford » Fri Oct 06, 2017 9:20 pm

I’m surprised a freeze would have such a significant impact to a long-term employee unless you expect your income to ramp upconsiderably in next two years? You’re entitled to what you’ve already accrued

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Re: Pension Freeze - What did you do?

Post by Dottie57 » Fri Oct 06, 2017 9:25 pm

runner3081 wrote:
Fri Oct 06, 2017 8:57 pm
Dottie57 wrote:
Fri Oct 06, 2017 8:55 pm
runner3081 wrote:
Fri Oct 06, 2017 8:28 pm
Dottie57 wrote:
Fri Oct 06, 2017 6:54 pm
Too me it seems too good for the company to be able to not follow through on what is essentially part of your payment for work.
http://www.groom.com/media/publication/ ... s_2014.pdf
Wrong, this is a benefit not pay. There is nothing he can do, a company can start or stop benefits at anytime.

Also, he is not losing anything, all earned credits will stand.

Just a nit. My employer talks about total compensation. (No defined benefits package). The 401k is part of the cmpensation package for employees. My compensation for working is less if I don't receive the benefits,
Most employers list health benefits in there as well, again, not required. I understand it is a takeaway, but it is a voluntary offering at the end of the day.

It is not necessarily a bad thing for employees who may not be thrilled with the company. There are no longer any golden handcuffs holding them on-board :)

Well I guess when it comes down to it your salary/pay can be reduced.

runner3081
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Re: Pension Freeze - What did you do?

Post by runner3081 » Fri Oct 06, 2017 9:25 pm

Morford wrote:
Fri Oct 06, 2017 9:20 pm
I’m surprised a freeze would have such a significant impact to a long-term employee unless you expect your income to ramp upconsiderably in next two years? You’re entitled to what you’ve already accrued
All depends on the formula. I have seen plenty of plans that really add significantly to the payouts over the last few and highest earning years of a career.

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FIREchief
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Re: Pension Freeze - What did you do?

Post by FIREchief » Fri Oct 06, 2017 9:48 pm

Never, ever, ever count on Megacorp to do anything more than the law requires. This is a key motivation to prepare to FIRE. At my Megacorp, a pension's value increased well over tenfold when a person hit their 55th birthday. Screw up or die (another way of screwing up) a week before 55 and it's tough S**T. God I sure don't miss Megacorp.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Watty
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Re: Pension Freeze - What did you do?

Post by Watty » Fri Oct 06, 2017 9:49 pm

It was not clear if you have seen the details of your specific numbers. If not then you really need to wait until you see the numbers since it might not be as bad as it sounds.

There are really two big questions to crunch the numbers on.

a) Did they calculate the cash balance fairly? There are federal rules on how the math needs to be done and it will be audited. If you are working for a large company it is likely that the Pension Benefit Guaranty Corporation is insuring it and will also oversee the process so there is little chance that you are getting screwed with your accrued pension benefits.

b) How much is the loss of future pension benefits accruals going to cost you? This could be significant but that is more of a future loss since you were not guaranteed employment for life so you can consider that a reduction in future compensation that will at least be partially offset by the new cash pension plan contributions.

Here is what happened when my pension plan was frozen back in the 1990's.

1) The traditional pension plan was converted to a cash balance plan.

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.

3) The value of the cash balance will grow each year based on some formula like the ten year treasury or some minimum interest rate.

4) To replace the pension plan plan they added a 3% match to the 401K that they did not have before. For younger people that was actually better but for older people it was a less.

5) About five years later the company closed that office and only a handful of employees transferred to other locations so about 95% of the people were laid off. At that point they could roll their cash balance pension plan out to an IRA. If it was still a traditional pension plan then the only option that they would have had would have been to waited until they turned 65(or eligible for early retirement) to get the pension that they had accrued at the time of the layoff. This was not adjusted for inflation so the people that were decades from retirement would likely not have gotten a significant pension.
tooluser wrote:
Fri Oct 06, 2017 6:44 pm
I am wondering what others did in similar situations.
I was one of the few people that transferred to a different office when the rest of the people were laid off. I could not roll the money out to an IRA while I was still working there so it remained invested in the cash balance plan for over 15 more years until I retired. Interest rates were higher when the pension plan was frozen so it had a guarantee of a minimum 5% investment return. That worked out well for me since it was getting a good investment return that counted in my fixed income asset allocation.

I also got the new 3% 401k match for 15+ years until I retired and that was invested in helped my 401k grow.

As other have said there is not much you can do unless there are better jobs available that you can leave for. I know some people that are about your age that have a traditional pension plan so they are really locked in their job and have to put up with some egregious BS just because the management knows that they will not leave because of the pension.

There is a saying "A broken clock is right twice a day" so even if this looks bad for you there is a chance that it could actually work out for the best you(or at least your estate). For example if something happens like there is high inflation, higher than expected investment returns, you have a need for a large amount of money, or you are in the 50% of people that die before average then having the cash balance could work out better than having the traditional pension.

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Re: Pension Freeze - What did you do?

Post by tooluser » Fri Oct 06, 2017 10:10 pm

runner3081 wrote:
Fri Oct 06, 2017 9:25 pm
Morford wrote:
Fri Oct 06, 2017 9:20 pm
I’m surprised a freeze would have such a significant impact to a long-term employee unless you expect your income to ramp upconsiderably in next two years? You’re entitled to what you’ve already accrued
All depends on the formula. I have seen plenty of plans that really add significantly to the payouts over the last few and highest earning years of a career.
My pension plan is unusual. I won't put out exact numbers, but the current pension translates to about 1.9% of salary for each year of service. The benefit compounds annually according to the stock and bond markets, positive or negative. This makes the math fuzzy and somewhat unpredictable. Over time it has worked out to essentially inflation-adjusted, maybe a bit better overall.

The defined contribution appears to generate only 0.4% of salary in retirement, if one considers the difference as the NPV of a non-inflation-adjusted annuity one would purchase to supplement the pension. That number will get worse once I adjust the new values for an inflation-adjusted annuity.

I have not done the final math and perhaps there is something I'm missing. This appears to be about a 5% haircut over 3 years, and 15% (of a larger benefit) over 10 years. Those are not trivial numbers.
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tooluser
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Re: Pension Freeze - What did you do?

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

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FrugalInvestor
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Re: Pension Freeze - What did you do?

Post by FrugalInvestor » 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.
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

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Uncle Pennybags
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Re: Pension Freeze - What did you do?

Post by Uncle Pennybags » Fri Oct 06, 2017 10:38 pm

student wrote:
Fri Oct 06, 2017 8:50 pm
Since you are a saver, it may be to your advantage that future contributions are now in your name.
That depends on what the company match is, what investments are offered and at what expense ratio. There is a vast difference in plans. A good plan invested the Boglehead way is preferable to an annuity, which a defined benefit plan is. The big difference is you get to take the money with you when you die. :mrgreen:
runner3081 wrote:
Fri Oct 06, 2017 8:53 pm
It is very possible that if the pension plan continued, the unfunded liability could cause the company to dump it off to the PBGC and you end up with pennies on the dollar, suddenly, without having warning and being able to plan around it.
The PBGC covers pensions 100% up to $5,906.25 a month at age 66.

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Re: Pension Freeze - What did you do?

Post by lynneny » 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.

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Re: Pension Freeze - What did you do?

Post by FIREchief » Sat Oct 07, 2017 12:18 am

Uncle Pennybags wrote:
Fri Oct 06, 2017 10:38 pm
The PBGC covers pensions 100% up to $5,906.25 a month at age 66.
If you figure out how they calculate this, you may be the first. Most/all retirees select something other than a 100% life annuity. Knowing this, what somebody will collect if the PBGC takes over won't be clear until they start sending the checks. That could be a disappointment. Hence, my recommendation to anybody under a defined benefit pension plan to pull out as much money as possible as quickly as possible. 8-)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Pension Freeze - What did you do?

Post by mouses » Sat Oct 07, 2017 2:59 am

lynneny wrote:
Fri Oct 06, 2017 10:52 pm
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.
In my experience, when a company is doing progressive layoffs, each one has lower severance than the previous.

OP, I understand your anger. MegaCorp is run by corrupt individuals who pay themselves enormous salaries and think employees are replaceable cogs in the wheel. We aren't, of course, but MegaCorp is okay with churning out junk products because they have replaced skilled workers with less skilled ones. People buy junk products. Just consider the level of trash sold nowadays compared to the quality of products years ago,

One compensation is that now you owe them no loyalty whatsoever and can walk out the door at any time.

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Re: Pension Freeze - What did you do?

Post by Watty » Sat Oct 07, 2017 5:30 am

Uncle Pennybags wrote:
Fri Oct 06, 2017 10:38 pm
A good plan invested the Boglehead way is preferable to an annuity, which a defined benefit plan is.
I would disagree with that statement. They are not best for everyone but a pension or carefully selected single premium annuity can be a very good choice for part of a retirement plan since it will allow higher spending levels. They are not perfect but they can be a very valid option to consider.
mouses wrote:
Sat Oct 07, 2017 2:59 am
In my experience, when a company is doing progressive layoffs, each one has lower severance than the previous.
+1

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.
FIREchief wrote:
Sat Oct 07, 2017 12:18 am
Uncle Pennybags wrote:
Fri Oct 06, 2017 10:38 pm
The PBGC covers pensions 100% up to $5,906.25 a month at age 66.
If you figure out how they calculate this, you may be the first. Most/all retirees select something other than a 100% life annuity. Knowing this, what somebody will collect if the PBGC takes over won't be clear until they start sending the checks. That could be a disappointment. Hence, my recommendation to anybody under a defined benefit pension plan to pull out as much money as possible as quickly as possible. 8-)
I'm not sure what you mean by that. For a typical single company plan it is pretty straightforward. Not all pension plans have PBGC coverage and union pensions are different.

Here is a table that shows the least that people will get normal 100% survivor with 50% survivor options if the spouse is the same age. It will vary some if the spouse is significantly different in age but if that is an issue then you should be able to call them and get more information.

https://www.pbgc.gov/wr/benefits/guaran ... -guarantee

If the pension plan had a lot of assets but not enough fully pay everyone then the PBGC payments can be higher than that.

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Re: Pension Freeze - What did you do?

Post by Tamarind » Sat Oct 07, 2017 5:52 am

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.
Something like this happened to my mother in the aughts. She had many years left to work but it still bothered her, of course. The company is still in business but has remained relatively unstable. The cash balance plan is probably more stable for retirees, to my way of thinking, because it's run by an insurance company with better financials than the megacorp.

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Re: Pension Freeze - What did you do?

Post by Carl53 » Sat Oct 07, 2017 7:02 am

My company froze pensions for newer employees in the early 2000s. I bailed at 55 a few years later after looking at the company's future and the likelihood that the management would do anything to enrich themselves. I was able to take the pensions (I had two) under a leveling program that allowed each to pay a premium of roughly 60% for seven years until I was 62 at which time it dropped to about 2/3 of the base pension. I did this as I expected the pension to be flipped to the PBGC and could have gotten a substantial haircut. Of course the company went bankrupt and the corporate officers arranged to get their pensions paid out in cash (I did not get that option).

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Re: Pension Freeze - What did you do?

Post by Dandy » 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.

I remember when 401k plans were introduced. Older employees felt that it was only a matter of time for companies to do away with the guaranteed pension plans. I have 2 pensions from large companies. I expect some day to receive notice of a lump sum offer I can't refuse or off load retiree supplemental medical coverage for retirees. Before I left in 2000 one company already froze the guaranteed benefit pension to a guaranteed contribution plan.

I think there may be some competitive pressures on US companies who try to compete with foreign firms whose country provide federal benefits like health insurance vs individual U.S.firms providing those benefits. The foreign citizens pay higher taxes but do the foreign firms have lower employee related expenses? Maybe.

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Re: Pension Freeze - What did you do?

Post by alec » 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:
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair

student
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Re: Pension Freeze - What did you do?

Post by student » 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.

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alec
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Re: Pension Freeze - What did you do?

Post by alec » Sat Oct 07, 2017 8:32 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.
Yeah, I don't think that's the problem. Our CFO said it was

(1) unexpectedly lower interest rates, which pushed up the PV of future benefits.
(2) realized returns on pension assets was lower than assumed.

Both of which greatly increase the company's mandated current pension contributions, much over what had been planned for/budgeted.
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair

feehater
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Re: Pension Freeze - What did you do?

Post by feehater » 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.

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Re: Pension Freeze - What did you do?

Post by ksleo » Sat Oct 07, 2017 8:58 am

OP, I know it must be hard to lose your pension. It sounds like you're getting a truly raw deal. Perhaps, however, you can make lemonade out of lemons, so to speak, and look at things this way: Many other posters have mentioned their pensions were cut as well. (Incidentally, my grandfather had the same thing happen to his megacorp pension.) If so many pensions are being cut, then corporate profitability should remain high, and thus the market ought to have good returns as well. If you stay invested then you can capture those returns and make up for the loss of your pension.

Obviously the pension would have been preferable, but maybe this way of thinking can help you get past the anger stage and into the acceptance stage sooner rather than later.
Actions have consequences.

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Watty
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Re: Pension Freeze - What did you do?

Post by Watty » Sat Oct 07, 2017 9:11 am

alec wrote:
Sat Oct 07, 2017 7:40 am
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.
The devil is in the details.

When my pension plan was frozen once the numbers were out the reactions of people were very mixed depending on people's ages which made things a bit awkward around the office when people talked about it.

Few of the younger people realistically expected to be with the same employer for decades so they were actually happy to get the cash balance plan since they were better off, or at least felt they were better off, with having the cash balance plan that they could eventually roll out to an IRA.

Once the details were understood the older workers were mostly OK with the changes in part because that was in the 1990's and the older workers had been through a lot of higher inflation and knew that 20 years of 5% inflation would mostly wipe out a fixed pension so that made the cash balance plan look more desirable.

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

Post by Earl Lemongrab » Sat Oct 07, 2017 11:54 am

Dottie57 wrote:
Fri Oct 06, 2017 6:54 pm
I kind of hate to say this, but have you thought of contacting a lawyer or contacting your state's department of labor. Too me it seems too good for the company to be able to not follow through on what is essentially part of your payment for work.
That would be a waste of time. Many companies have done this recently, including names you'd know.

Megacorp did this a couple years ago. They are giving us some extra employer contributions to the 401(k) to make up for it.
This week's fortune cookie: "The stock market may be your ticket to success." I sure hope so!

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