Pension Plans-What they don’t tell you


United States, 12th September: Traditional and reliable pension plans are increasingly getting replaced by new pension plans in the cash-starved times being faced by majority of companies.

United States, 12th September: Traditional and reliable pension plans are increasingly getting replaced by new pension plans in the cash-starved times being faced by majority of companies.

And the sufferer remains none other than the employee. Let us see what is missing from the new pension plans—

 Defined-contribution plans—A large number of companies have replaced traditional pension plans including generous defined-benefit plan with defined-contribution plans. However, defined contribution plans fail to offer optimum level of retirement security provided by classic defined-benefit plans.

• Changing terms of pension plans- A common norm among even some of the best companies is changing the terms and conditions of the pension plans to pay less than agreed to at retirement. Moreover, the terms seem to be becoming more complicated and misleading.

• Companies use pension amount—In a startling revelation by Government Accountability Office, around fifty percent of pension plans were invested in hedge funds. However, care must be taken to weigh the risks involved in less-than conservative options of investment, warns a pension-risk strategist, Susan Mangiero.

• Increased pension benefits- only in books—Its being seen that although, the government may announce increased pension benefits, but that’s remains only on records and never goes over to the retirees, states a senior fellow with Manhattan Institute( a think-tank), Josh Barro. The fact is that pension plans are being sold as bonds by many US states.

• Taxpayers pay state pension debt—Strange it may seem, but the truth is that vague terms of pension plans by public-sector companies seem to be making a hole in the retirees’ pockets by taking money from their pockets for covering pension debt of the state.

• Employees forced to make higher contributions for pension plans—No wonder, to fund pension plans, employees are being compelled to make higher deductions from their salaries for contributing towards public pension funds.

• Retirees bearing the brunt of department’s errors—Careless mistakes of US OPM(Office of Personnel Management) are resulting in huge reductions in the pension payments for retirees.

• Unclaimed retirement benefits—According to CEO of PenChecks, Peter Prevolos, currently, around 100,000 records pertain to unclaimed pensions.

• Claiming benefits from old pension tougher—Getting benefits from an old pension plan could be difficult due to several reasons including loss of documents, merger of companies and so on.

• Pension and salary—In some instances, some of the employees retiring from public companies get rehired. This means getting salaries as well as pension for the employees. This is a double burden for the retirement program.