Lock a different box
Jon Titus, Editorial Director -- Test & Measurement World, 3/1/2001
During the presidential campaign, Al Gore should have paid more attention to another benefit that needs locking up-private pension plans. Over the last few years, many companies have moved from traditional pension plans to cash-balance plans. Although such moves by law can't deprive workers of vested retirement benefits, they can reduce future benefits.
In a cash-balance plan, a company contributes to an "account" a small percentage, say 4%, of an employee's wages. The account balance earns 4% to 6% annually-about the same as Treasury bills. Unlike traditional retirement plans that grow substantially as employees get closer to retirement, cash-balance plans grow slowly. So, someone near retirement who might have had 50% of his or her salary (based on years of service) contributed to a retirement plan, now gets the same percentage as everyone else.
New employees may have to wait five years until their benefits "vest" and become available at retirement. If you jump from job to job, retirement benefits may evaporate. Vested employees can transfer at least some of their benefits into an IRA, but companies can impose onerous restrictions on how much they transfer and how they receive retirement benefits.
Unfortunately, most people have little recourse when their company switches plans. Although they might have started their career under one pension plan, the company can change plans at will. The change often gets announced in a memo about "enhanced" pension benefits. Thankfully, some companies have given people close to retirement a choice to continue under a traditional plan, or switch to a cash-balance plan. The switch can cost as much as 50% of benefits, though. But unless you hire a financial consultant to sift through pension data, you'll never know.
The Equal Employment Opportunities Commission (EEOC) continues to look into issues such as age-discrimination that surround pension-plan changes. But until someone puts a lockbox on private pensions, your best bet is to stay informed. You can do that by going to a Web site such as www.cashpensions.org for more information.
Protecting pension benefits could be easy. Instead of legislating rules for new plans, why not let us take advantage of existing IRA, 401(k), and other accounts we can manage ourselves? Just lift the ceiling on contributions by individuals and companies, increase company-matching contributions, decrease paperwork, and let people set their own investment goals. I'm darn sure I can beat that 6% rate of return. T&MW
