Would you be interested in a pension plan that only pays you if you live to be older than 75?
Milliman, a highly regarded pension actuarial firm, recently floated this idea in its Retirement Town Hall blog, and its readership, which includes human resources personnel and financial planners, liked the idea.
Milliman says its proposed plan would work something like this:
Employees would continue to save in 401(k)s for their early retirement years, but employers might not be expected to match those savings. Instead, employers would contribute a flat amount toward this alternative longevity pension in each year that an employee older than age 45 works for them. That money would accumulate and be managed for the long haul, with employees only being entitled to a pension if they live past 75. Employees could delay taking the pension until age 80 and get a higher amount.
In Milliman's scheme, there would be no subsidized early retirement benefits and limited death benefits. The only distribution options would be a single annuity or 75 percent joint and survivor annuity -- no lump sums.
The retirement planning advantage to employees is that they don't have to worry about having no money in their very old age. They'll only have to save enough money to cover the early retirement years. If they hang up their work boots at 65, they'll need enough savings to cover 10 years without a pension.
Once they started claiming, their pension would likely be generous because only about half the people who might be entitled live to collect. Milliman calculates that 50 percent of workers who are 65 today will live past 75. About 38 percent will live to be age 90, but only 5 percent will reach 100. This limited number of likely pensioners also would make these plans inexpensive for an employer to set up and fund.
The only thing that would prevent employers from adopting such a plan are current Internal Revenue Service rules that require pension providers to begin payouts at age 65. That regulation would have to be changed, Milliman says, for this to be a practical idea.
What do you think? Would you be happy with this kind of pension plan?