Labor and Employment

Even the Best Laid Retirement Plans May be Spoiled

Millions of US workers retire each year. Is this year the year for you? You've worked hard to put yourself into a good financial position for retirement, but are you sure you're ready? The 2008-2009 economic downturn may have changed things for you.

Lower Payout?

The Pension Protection Act of 2006 was enacted to help protect millions of workers' retirement plans by making sure employers took steps to protect their workers' pensions from financial ruin. For instance, it gives employers incentives and tax breaks for fully funding their pension plans, and it penalizes employers that fail to do so.

It also gives employers some freedom to change payment options. And, in the wake of the 2008-2009 Great Recession, more employers are taking advantage of the freedom. They're saving millions of dollars, and many retirees are getting much less in retirement benefits.

Retirees who choose to take lump sum retirement payments are hit hardest. Employers are changing the way they calculate how much retirees will be paid. As a result, lump sum payments are 10 to 60 percent lower.

Less Help?

401(k) plans are popular retirement/pension tools, too. You make contributions from your paycheck to an account and invest the money for retirement. Your employer probably matches a certain amount of contributions - it's free money.

The recession may be changing this, too. Some employers began reducing, even eliminating, their matching contributions as early as 2007, and continued to do so into 2010.

There is some good news, though. Overall in 2010, the number of employers offering matching contributions increased from 2009. Also, a large percentage of employers that stopped making matching contributions have said they plan to resume making the contributions within the next two years.

Contributions limits for 2011 haven’t changed from 2010's - $16,500 for anyone under 50, $22,000 for those 50 and over.

Longer Wait?

To save money, some employers are raising the age of retirement. This is especially true for state and city government employers. They're also paying workers' less in retirement benefits, or charging a higher penalty against those benefits, if they retire early.

What You Can Do

If you're planning on retiring this year, there are some things you should look into to make sure your financial plans are intact:

  • Talk to your supervisor or human resources department about any changes made, or up-coming changes to, your retirement plan. Most retirement plans have to follow strict federal laws when changes are made, including letting you know about those changes
  • Check your employee handbook (or employment contract, if you have one) for details on retirement age and retirement benefits
  • Instead of taking a lump sum payment at retirement, consider taking payments over time - like a "paycheck" every month. Employers and retirement plans differ, of course, but as a general rule lump sum and periodic payments aren't calculated the same, and with periodic payments, you may net more in the long run
  • Continue making the maximum contributions to your 401(k), even if your employer has lowered or stopped making matching contributions. It's still a very god way to save for retirement
  • Contact a financial advisor or pension and benefits attorney if you have any questions

The economy may have changed some things, but with some investigation and planning, your plans for retirement may be saved. 

Questions for Your Attorney

  • Can I move my 401(k) while I'm still working for my employer?
  • Which is better for tax purposes, a lump sum or periodic payment plan?
  • Can my former employer change my retirement payments after I retire?
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