"Older
workers may not be able to increase
the cash value of their pension
in the remaining years before
they retire, and the pension plans
will be eliminated in a few years
and replaced with a lower valued
Cash Balance plan."
The retirement benefits
of workers at companies converting from
traditional pension plans would be somewhat
better protected under a proposal before
congress. The US Treasury Departments proposal
requires that company pension benefits remain
at least as valuable as they would have
been for 5 years after the switch from the
30 year treasury rate as the calculation
method (see Feb 2004 newsletter).
Cash Balance plans have become increasingly
more popular in recent years as they build
benefits more slowly, funding a little value
each year. This compared with the traditional
pension plans that reward long term service
with a generous spike in benefits at the
end of a workers career.
The problem for the retiree in question is two fold:
1) many older workers who have worked for
the company for years miss out on the spike
they have been planning on for years, and
2) they may not have enough time left in their
careers to make up the difference.
Here is the dilemma for
older workers, at or near retirement age.
Older workers will not be able to increase
the cash value of their pension in the remaining
years before they retire, and the pension
plans will be eliminated in a few years and
replaced with a lower valued Cash Balance
plan. The older workers are put in this difficult
situation. They must consider retiring early
rather than working the remaining years versus
staying and trying to save more each year
through a traditional 401K or IRA savings
plan to provide the difference needed for
their retirement.
