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Dr. Greg Segment Summary

Disappearing Company Pension Plan & What You Need to Know

Dr. Greg Ketchum, 10/01/05

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A couple of months back Hewlett-Packard announced they were laying off 14,500 workers and “dismantling” their pension plan. That is, they will stop contributing to their pension plans and new employees will not be eligible for a pension. HP’s move is a good example of two trends impacting company retirement plans.

  1. Ending “Defined Benefits” Plans: Here, the company funds the retirement plan and the benefit that you receive is a “defined amount.” Like HP, many companies are phasing out or “freezing” these plans. HP expects to save $300 million a year by doing this. Who makes up the difference? You do.
  2. Shift to “Defined Contribution” Plans: Here, you make the contributions to the plan, your employer may or may not match them and contribution you make is defined, not the benefit you’ll receive. Many companies are moving to plans such as the 401(k).
What Does It All Mean to You
Companies are shifting responsibility for your retirement to you. Now planning and saving for retirement is up to you. That’s good news in that you’ve got more choices as to where and how to invest your retirement money, but bad news in that most of us don’t have a clue how to manage our money short-term, let alone plan for retirement.

What Should You Do
The most important step: get actively involved now in planning for retirement even if you’re young or don’t have the cash to put away currently. Don’t put it off getting involved and planning till later.

Here are some steps you can take right now to get to work on your retirement plan.

  1. Educate Yourself: Start with the free handbook “Protect Your Pension: A Quick reference Guide” available for the US Dept. of Labor. 866.444.3272 http://www.dol.gov/ebsa/Publications/protect_your_pension.html
  2. Check Your Employer Plans: Make sure you understand what type plans your employer offers and be sure to take maximum advantage of what is offered. Some employers match your contributions but you can’t get that money if you’re not contributing.
  3. See a Financial Planner: Start by requesting a Free Financial Planning Resource Kit from the Certified Financial Planner Board of Standards, Inc at http://www.cfp.net/learn/requestkit.asp

Finally…
Consider working past age 65. The longer you work the less you’ll need to save for your retirement. Baby boomers are redefining the very concept of retirement. In fact, a recent article in Newsweek captured the change in attitude towards retirement with this quote from a Baby Boomer,  “Boomers don’t see retirement as freedom from work but as freedom to choose what’s next.”

For more information and a list of retirement planning references go to talentplanet.com and click on Dr. Greg.

References

®2005 All rights reserved. Gregory A. Ketchum, Ph.D.

  
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