Retirement Realities
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What to do if your pension freezes over

Transitioning over from a defined benefit plan to a defined contribution plan requires some homework, because your bottom line will change when it's time to start collecting benefits. The amount you receive from your pension is based on a formula that takes into account years of service and compensation. When your plan changes, so will the payout you can expect to receive from your pension plan.

You should familiarize yourself with the plan's changes, then determine about how much you'll receive when you start drawing your pension. (Your company's human resources office should be able to assist you with this.) Once you have that figure, crunch the numbers and see how much you'll fall short of earlier expectations. That will give you a savings goal.

Does your employer match contributions? If so, you should maximize that opportunity by contributing at least the amount to get the full match. But you might also want to consider alternative savings plans to supplement your 401(k) contributions, especially if the investment options are limited.

If your pension is terminated

In the worst-case scenario, a company can terminate your pension. That doesn't happen often, but if it does, you have some protection. Your employer must either pay your money out in a lump sum or purchase an annuity. If the company's gone belly-up financially, as Harlem's North General Hospital did recently, the PBGC can and will step in.

Fortunately, terminations are not as common as pension freezes. Ronald Stair of Creative Plan Designs works with companies to realign their pension plans. He says he's helped 74 firms put their plans into a freeze, but that even if a company freezes its plan, all is not lost.

"The advantage to a freeze is that the company can thaw it at any time, even if it's a partial thaw. Sometimes (companies) just need to let the dust settle, and a freeze helps them get to the end of the year," says Stair.

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