The use of Defined benefit pensions continue to decline at an alarming rate. Although this may be true, employee’s will be the one’s who suffer in the long run.
Employees transferring their pension commuted values could soon receive reduced payouts thanks to an updated formula that takes effect on December 1.
For this reason, employers have systematically been eliminating the use of Defined Benefit pensions in favor or Defined Contribution pension plans.
Why would employers do this?
Simple! In the end, the employer gains the following:
- investment risk is off loaded to employees
- reduced costs
- increased executive pay and benefits
- increased value to passed to shareholders
- lucrative options issued to executives
Ultimately, this move by employers reduces the possibility they will have to make up for any pension short falls in the future. By all means, expect employers to adopt strategies to limit any future pension contributions on their part.
At the same time, employee’s are being forced to become their own pension mangers. As unfair at this situation is, ethically employers need to provide resources to help employees with this monumental task. For example, if your employer offers you a questionnaire, which in turn determines your investment strategy and portfolio, this is a total failure. Employers need to step up and help their employees. All things considered, you will likely need to seek outside investment counsel at our own expense while executive bonuses reach record levels.
To sum up, Advisor’s Edge posted an interesting article on the topic, you can check it our here. It’s an interesting read, check it out!
Conclusion
If your employer offers a pension plan, which type is it? Chances are it’s a defined contribution pension plan. With this in mind, you are responsible for managing your pension. Your employer elected to hand this responsibility to you. Whether you like it or not, you’ve been throw to the wolves. By all means, you can expect to see further cuts to defined pension payouts in the future.
Learn more about defined benefit and defined contribution pension plans.
