New Visitors Privacy Policy Sponsorship Contact Us Media
Baby Boomers Family Green Home and Auto In Critical Condition Just Starting Out Lifestyle Money
- advertisement -
Bankrate.com
News & Advice Compare Rates Calculators
Rate Alerts  |  Glossary  |  Help
Mortgage Home
Equity
Auto CDs &
Investments
Retirement Checking &
Savings
Credit
Cards
Debt
Management
College
Finance
Taxes Personal
Finance

 
Pension law: Many changes, mostly positive
Page | 1 | 2 | 3 |

Jury's still out on defined benefits
So will this new law strengthen or weaken pensions?

"We don't know whether it'll make benefits more secure or hasten the demise of defined-benefit plans," Alicia Munnell of Boston College's Center for Retirement Research told The Wall Street Journal recently.

Attorney Davis, of Reish Luftman Reicher & Cohen, has a more sanguine outlook. "I don't think the increased funding requirements are going to push that many more companies to stop offering defined-benefit plans," she says. However, the new legislation will afford legal protections to employers that convert their plans to cash-balance or other types of hybrid plans, she says.

For younger workers, that could be a good thing, but not so for older ones. Even though they generally get ripped off from such a conversion, older workers won't be able to fight these decisions on the grounds of age discrimination. Or if they do fight, they likely won't win. Witness the class-action suit that's been dragging on for years, filed by IBM workers and retirees. A recent appellate court decision found in favor of IBM. The court agreed that the older workers were "worse off under a cash-balance approach," but determined that the terms of the plan were nevertheless "age-neutral."

Fine too low to slow the trend?
Companies that terminate their plans will have to pay the PBGC a fee of $1,250 per plan participant, and this penalty is supposed to deter them from seeking rescue. But that seems like a small price to pay to get out of the long-term obligation of paying workers retirement benefits for life, especially if there are inadequate funds with which to do this.

The stiffer funding requirements, combined with accounting rules that force companies to put their pension surplus or deficit on their balance sheets, will effectively prevent companies from offering new defined-benefit plans, Robert Pozen, chairman of MFS Investment Management, predicted in a recent commentary. "And the existing ones will be gradually phased out, frozen or converted into cash-balance plans."

At least there's some consolation for workers whose defined-benefit plans are troubled: The top executives of those firms will also suffer. "The act restricts the funding of (nonqualified deferred compensation) plans for the top five executive officers if the defined-benefit plan is considered to be at risk, the employer is in bankruptcy, or six months before or after the termination of an underfunded defined-benefit plan," says Davis.

Don't worry. These guys are smart and will find a way around this provision. But the bottom line is, if you're lucky enough to work for a company that offers a defined-benefit plan, there's a very good chance that by the time you retire, you'll end up with less than you expect. Just ask a Delta pilot.

Bankrate.com's corrections policy -- Updated: Aug. 17, 2006
 
 
Create a news alert for "saving"
Page | 1 | 2 | 3 |
 
 RESOURCES
10 new tax changes you need to know
529 exemption made permanent
A tale of 2 pension plans
 TOP PERSONAL FINANCE STORIES
IRA penalty has multiple exceptions
Best times to shop for bargains
Remarriage saps Social Security benefit
 

Compare Rates
NATIONAL OVERNIGHT AVERAGES
IRA MMA 0.51%
1 yr IRA CD 0.77%
5 yr IRA CD 1.85%
- advertisement -

About Bankrate | Privacy Policy/Your California Privacy Rights | Online Media Kit | Partnerships | Investor Relations | Press Room | Contact Us | Sitemap
NYSE: RATE | RSS Feeds |

* Mortgage rate may include points. See rate tables for details. Click here.
* To see the definition of overnight averages click here.

Bankrate.com ®, Copyright © 2014 Bankrate, Inc., All Rights Reserved, Terms of Use.