Just a short time ago, after somewhere between 30 and 40 years of loyalty to your employer, you could count on retiring and be gifted with the gold cuff-links or diamond bracelet and a pension income that would generally outlive you.  The world is a different place.  The never ending retirement income – resulting from a defined-benefit contribution plan – may soon be a thing of the past.  Why the gradual shift away from defined-benefit plans toward the direction of defined-contribution plans?

From an employee’s point of view the defined-benefit contribution pension plan is indeed a bonus and appears risk free as the employer is required to predict and make arrangements to pay ample income to the employee upon retirement.  The bonus to the employee is that they get to retain and spend all of their earned wages while they can also predict how much money they will bring home each month during their retirement years as payouts from a defined contribution pension plan are calculated on a set formula.

Looking from an employer’s point of view the defined-benefit plans are an ongoing liability.  Money accumulated in these plans comes from corporate earnings which has a direct effect on company revenues.  This may in turn be a drag on profits and can undermine a corporation’s capacity to contend in our rapidly changing business climate.

Many corporations have taken steps to deal with this complexity.  Early in 2006 a major, well known company announced a freeze on its defined-benefit contribution plan.  This indicates the corporation will stop funding the plan.  A freeze is usually the first step toward eliminating the plan.  Other corporations followed this path.  In freezing their defined-contribution benefit plans, these corporations are heading in the direction of a global strategy of shifting away from employer funded plans and will move toward employee funded defined-benefit contribution plans.  This move is great for the corporation as it will allow the corporation to keep billions that would otherwise be utilized to fund the defined-benefit contribution plan.

Under the current system, corporations will forecast the quantity of funds that will be needed to fulfill the obligations to their retired employees, although they don’t always entirely fund the plans.  This results in the funding not being available as needed and the government must bail out the plans.  This trend is bad news for employees.  There are predictions that the defined-benefit plans will fade away over the next few years. Employees must consider the new reality of retirement by taking control and planning for themselves.

Keep yourself informed and contact a qualified Benefit Consultant TODAY. 

This article courtesy of www.BenefitConsultants.com

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