GE freezes employee pensions – what to do if your employer changes the terms of your pension plan

General Electric pulls the plug in the pension plan, and it is a sure way to derail workers' pension planning.

GE

GE, + 0.41%

announced on Monday that it will freeze pensions for 20,000 employees with paid benefits in an attempt to reduce the $ 8 billion pension deficit, and that it would also freeze supplementary pension for about 700 workers. Current pensioners who are already receiving their pension payments will not be affected and no new employment has been registered in the pension plan since 201[ads1]2.

When a pension is frozen, it no longer earns benefits, but it is still federally insured and employees do receive it. the amount already accrued. Still, that means losing potential revenue and having to cross-check employees to make a plan to make sure they have enough money in the future for retirement (usually by saving their own dollars, as opposed to relying on their company to make the).

"Every time we see someone lose a benefit plan, we see that they have lost all the victims they have made," Teresa Ghilarducci, a labor economist and director of The New Schools Schwartz Center for Economic Policy Analysis. "Almost all workers in defined benefit plans have given up many high increases, so not only do they lose a secure income for the rest of their lives – they also lost all previous wages they will never get back."

See: To and with pensioners working into retirement years

Many private companies have moved away from retirement plans, known as defined benefit plans, since the 1980s, especially after the introduction of 401 (k) plans, which places the responsibility on employees to save for their own There are various types of pensions, including plans for an employer (where only one company controls the pension), multiemployer plans (where many companies come together to offer their employees pension) and public pensions, which are typically for teachers, law enforcement and other government workers.

Avery Dennison

AVY, + 0.81%

was one of the last companies to end their pension plan last year, eight years after the program was frozen. Other major companies that freeze plans in recent years include UPS

UPS, -0.77% ,

IBM

IBM, -0.46%

and DuPont

DD, -0.92% ,

according to the Pension Rights Center, a nonprofit consumer advocacy group.

The state for retirement with an employer is improving and moving away from deficits, according to the Pension Benefit Guarantee, the federally-instituted insurance company for private pension plans, but multi-plan plans are in trouble. Around 130 of these plans, which cover 1.3 million people, run the risk of running out of money over the next 20 years, and if nothing changes, the PBGC multemployer branch that insures these plans will also be operational by 2025.

How GE Pension Freezing Works: Employees with these frozen pensions will not see any additional benefits and will not have access to contribute to their plan as of January 1, 2021. However, the company will contribute 3% of these workers' salaries to a 401 (k) plan and provides a 50% matching contribution for up to 8% of employee contributions. The company offers a one-time payment plan for a limited period to 100,000 former employees who have not yet begun to receive the benefits.

See also: Want to retire in retirement? How to make a

GE employee, or those in similar situations, should look at their benefits – to see how much they have accrued and how much more they may need to reach their retirement goals. Workers should also consider what other retirement income they can expect upon retirement – not just what payment they will receive from the pension if they decide not to take the lump sum, but also any 401 (k) savings, Social Security and spouse benefits and savings.

Employees should consider discussing whether to make monthly payments or choose a lump sum with a financial professional, who can calculate how much more or less they will receive in total over their lifetime, depending on which avenue they take.

"If the company's financial situation is in question, it might make sense to take the money and run," says Nate Wenner, principal and senior financial advisor at Wipfli Financial in Missoula, Minn. If they decide to take lump sums, workers should consider rolling the money to an individual retirement account to avoid tax surprises in April, he said. If you do, the money will be taxed until retirement, and the same will roll the money into a company 401 (k) plan.

And of course, employees should plan to save more between now and retirement, said Edward Snyder, a financial advisor at Oaktree Financial Advisors in Carmel, Ind. Workers should increase or maximize their 401 (k) contributions, if they can, and also store more in health savings accounts, if possible. (Health savings accounts are a tax-friendly way to save and invest for current or future health expenses, even if they are only available to people with high deductible plans, which can be expensive.)

Savings are essential to ensure a comfortable retirement. "I always advise clients to try to plan with what you can definitely control," said Kashif Ahmed, president of American Private Wealth in Bedford, Mass. "Unfortunately, most of these workers probably only counted on this pension to survive retirement. They are now in a precarious, if not obituary, position."