- Bargaineering - http://www.bargaineering.com/articles -
Pension Benefits Disappearing
Posted By Jim On 01/17/2006 @ 9:24 am In Retirement | No Comments
Yesterday, Alcoa Inc., the top aluminium maker in the world, announced that they would eliminate their defined benefit pension plan  to their new U.S. salaried employees and instead offer a 401(k) defined contribution plan for new employees, current employees and retirees aren’t affected. Alcoa would make a 3% contribution of the employee’s salary and bonus regardless of their own contribution and it would also match the first 6% of salary that an employee contributes to the 401(k), for a total of a 9% match on a 6% contribution.
This is a better situation for both the employer and the employee because if Alcoa hits a rough patch and is forced to enter bankruptcy protection, it is likely that the defined benefit pension plan would be a target. United Airlines recently received court approval to dump four pension plans to the Pension Benefit Guaranty Corp., which already runs at a deficit. When a defined benefit pension plan is terminated and given to the PBGC, employees get mere cents on the dollar which is bad for everyone.
With a 401(k), the money is in your possession and not in the hands of your employer. If Alcoa goes under, the 401(k) should be nestled away safely with a brokerage and thus not subject to termination. Anything you lose, would then be your fault because you chose a poor investing direction – that’s something everyone is willing to accept (compared to the alternative of your company going bankrupt, which you conceivably have little control of). Alcoa joins a lot of other notable companies who have terminated their defined benefit pension plans such as IBM earlier this year and Hewlett-Packard in 2004 (though effective this year).
Article printed from Bargaineering: http://www.bargaineering.com/articles
URL to article: http://www.bargaineering.com/articles/pension-benefits-disappearing.html
URLs in this post:
 Tweet: http://twitter.com/share
 Email: mailto:?subject=http://www.bargaineering.com/articles/pension-benefits-disappearing.html
 announced that they would eliminate their defined benefit pension plan: http://www.alcoa.com/global/en/news/news_detail.asp?newsYear=2006&pageID=20060116005551en
Thank you for reading!