Up until recently, after 30 or 40 years of allegiance to your employer, you could count on retiring and be gifted with the gold watch or diamond bracelet and a pension income that would last the full length of your retirement. Times have changed. The never ending retirement income - resulting from a defined-benefit contribution plan - could well be headed for demise. Why the little by little shift away from defined-benefit plans with a movement toward defined-contribution plans?
From an employee’s point of view the defined-benefit contribution pension plan is rightly a bonus and seems likely to be without risk as the employer must foresee and provide sufficient pension dollars to the employee when they retire. The benefit to the employee is that they get to keep and spend all of their income while they can also foresee how much money they will make each month during retirement as disbursements from a defined contribution pension plan are calculated on a set formula.
From an employer’s view point the defined-benefit plans are an ongoing obligation. Money accumulated in these plans comes from corporate earnings and this has a direct influence on company profits. This may in turn be a drag on profits and can minimize a company’s power to contend in our rapidly changing world.
Many companies have taken steps to deal with this situation. Early in 2006 a major, well known corporation announced a freeze on its defined-benefit contribution plan. This tells us that the corporation will stop funding the plan. A freeze is generally the first sign of eliminating the plan. Other companies followed this path. In freezing their defined-contribution benefit plans, these companies are heading in the direction of a global method of shifting away from employer funded plans and will move toward employee funded defined-benefit contribution plans. This change is fantastic for the company as it will allow the company to retain billions that would otherwise be utilized to supply the defined-benefit contribution plan.
Within the present scheme, corporations will forecast the quantity of funds that will be required to meet the binding agreements made to their retired employees, although they do not always fully fund the plans. The consequence of this is the funding not being available as required and the government must step in and rescue the plans. This trend is bad news for employees. There are forecasts that the defined-benefit plans will slip away over the next few years. Employees must take into consideration the new reality of retirement by taking control and planning for themselves.
To be sure your retirement will not be compromised contact a qualified Benefit Consultant TODAY.
This article courtesy of www.BenefitConsultants.com
Sun, Jul 12, 2009
Careers Employment