Defined Benefit Plan
For our parents and grandparents, planning for retirement
was fairly simple. If they faithfully worked for a decent
employer for many years, in addition to receiving a gold watch,
they were taken care of via a company pension. The pension
was on the house so to speak.
- Nancy Lloyd, author of
Simple Money Solutions
Back in the days of World War II, the definition of a good
job was one that offered pension benefits. Not anymore. Today,
a good job means stock options and an HMO.
Retirement plans have changed a great deal in the past two
decades, but there are still some companies that offer pensions,
also known as defined benefit plans. With a defined benefit
plan, the employer imposes a predetermined formula to calculate
the exact benefit an employee will receive upon retirement.
This is usually based on salary and number of years of service.
It is the company's responsibility to invest the pension money wisely so that it will someday pay a retiree a monthly check for life. However, it is up to the employee to check the status of the health of the pension. Upon request, a company is required to provide workers with the amount of money they have accumulated in their pension account.
Check with the Pension Benefit Guaranty Corp at
www.pbgc.gov for your rights. The PBGC requires most plan administrators to send a notice to workers if the pension's funding level remains below 90%.