Word: pensioneer
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While consultants argue that these new plans offer a majority of workers a more flexible benefits package, opponents say it's a calculated attack on the financial security of millions of aging baby boomers just as they're entering their prime earning years, when pension accruals increase substantially. Democratic Senator Daniel Patrick Moynihan of New York has introduced a bill to require firms to provide adequate information to workers on such benefit makeovers...
...fact, close to two-thirds of workers fare better under the plans. Here's why: each year, an employer contributes a defined amount (usually 5% to 8%) of an employee's salary into an interest-bearing account. It's more like a 401(k) savings plan than a traditional pension, which is typically based on an average final salary and total years of service. So instead of having to hang around for the long haul to reap most of the benefits, workers can carry their cash-balance earnings whenever and wherever they...
Take a 28-year-old worker, for example, who's making about $34,000 a year. Under a hypothetical cash-balance plan, he could walk away after only five or six years on the job with close to $10,000 in pension benefits, as opposed to a measly $1,200 in a traditional plan, according to the Society of Actuaries. Under the same cash-balance plan, a 50-year-old earning about $57,000 a year, with just over 20 years of service, would already have a $69,000 nest egg, more than double the value of a traditional pension...
Most firms won't be that accommodating. "We're talking about the people who are most vulnerable and career trapped," says Michele Varnhagen of the Pension Rights Center. People like Stephen Langlie, a retired engineer at Onan Corp., a Minnesota subsidiary of Cummins Engine Co., who claims his current, $420 monthly check under the cash-balance plan, to which the company switched in 1989, pales in comparison with the $1,500 projected under the old plan. Many colleagues have joined him in a class action against Onan...
Companies aren't obligated to offer any kind of pension plan, and they can terminate them altogether. As long as they do offer plans, though, they have to guarantee only accrued benefits, not any additional ones. "Employers are not setting these up for workers to suffer," argues Larry Sher, principal at PricewaterhouseCoopers. "There are trade-offs, but you have to try to strike a balance." Older workers just wish it could be a bit more delicate...