Retirement: What to do if your defined benefit pension plan is frozen
If you happen to work for a private-sector employer who provides as a benefit a traditional pension, you might consider putting in place a back-up plan.
Yes, in recent weeks, a number of well-known firms including UPS and General Mills have frozen the pay and service amounts used to calculate pension benefits for active employees who participate in the those plans. And more are likely to follow. In fact, in 2014, more than one out of three Fortune 500 companies froze their defined benefit plans in one way or another, according to published reports.
To be sure, fewer and fewer workers have a traditional defined benefit plan — a plan where you received a fixed amount monthly from your employer typically for as long as you or, in some cases, as long as your spouse lives — these days. Just 13% of all private-sector workers participated in a defined benefit plan in 2014 and only 44% participated in a defined (401(k)-type) plan in 2014, according to the Employee Benefits Research Institute (EBRI).
By way of background, in a defined benefit plan, each employee’s future benefit is determined by a specific formula, and the plan provides a nominal level of benefits on retirement, according to EBRI. Usually, the promised benefit is tied to the employee’s earnings, length of service, or both, EBRI notes.
So, for instance, let’s say a 50-year-old worker planned on getting $2,000 per month based on his or her projected earnings and length of service, but now — given a pension freeze — will receive something less than that, say $1,500.
So, what’s a worker to do?
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