Back in October of last year (2022), a national corporation whose employees we work with announced a change - a cut - to their employee pension plan. Those who retired by the end of November 2022 were not affected by these cutbacks. The reductions, which only affected lump sum payments and not monthly pension payments, were potentially as large as $60k for employees that had worked at the company for thirty plus years. Basically, they were provided one month's notice.
The change created confusion and some downright fear in the minds of employees. On top of this, most employees had experienced paper losses in their 401k’s due to the decline in the price of the company’s stock and the retreat of the stock market in general. They were presented with a lose-lose situation. For employees whose retirement savings were already short of what they needed, there was not much planning that could be done to compensate in the short-term.
Retiring early from the company last year with one month's notice only made sense if employee's funds were still sufficient to retire or, if they found a new job with benefits – very quickly. There are rumors of this happening AGAIN this year. The question is - if it does happen again, how much notice will be given?
To be fair, this example is - unfortunately - not unique in today’s world. Corporations who have a responsibility to manage the top and bottom lines, sometimes have to make tough decisions.
An article from 2021 on CNN Money (“Just how common are defined benefit [pension] plans”) stated:
Not very. The percentage of workers in the private sector whose only retirement account is a defined benefit pension plan is now 4%, down from 60% in the early 1980s. About 14% of companies offer a combination of both types [ 401k and pension plan.] Meanwhile, the few employers that still offer traditional pensions - typically industries with a strong union presence, such as the airline and auto sectors – have been working overtime to cut deals to either reduce or eliminate their plans."
It seems that the days are gone when the promises and benefits provided to employees were written in stone.
So you might ask, could I be impacted by this? It depends. If you don’t currently have access to a traditional pension plan, you’re not in danger of losing it. If you do participate in a plan; you’ll need to keep your eyes and ears open. More importantly, you should be proactive about creating or updating your financial plan. You should also consider working with a firm such as ours. One that understands at a deep level, how the plans you have access to, work and how you can maximize their value based on your unique situation and goals.
Keep in mind, the process of rolling over a retirement account can take months and can be difficult to navigate if not working with an advisor. Our best practice is to start the retirement paperwork process 3 months prior to your proposed retirement date. That's typically the earliest you can request paperwork. We prefer to allot extra time in case any mistakes are made in the processing of your paperwork. Unfortunately, it happens. If an “I” is not dotted, the process of sending your rollover check could be delayed. I was called in to help someone who tried to do their paperwork on their own and elected the lump sum “distribution” option instead of a rollover. That would have subjected the entire rollover to taxation - ouch.
Most people chose the lump sum payment since they want control over assets and flexibility. They also want the ability to pass funds down generationally. We take all these added planning concerns into consideration when helping our clients to plan for a successful retirement.
Simply put, it's best to work with an advisor, experienced in your particular retirement plan and it’s nuances, from the beginning of your company’s retirement process to make sure everything runs as smoothly as possible.
We encourage you to contact us today at to see how we can help you plan more successfully for your retirement and more efficiently handle your retirement distributions.