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Pensions, Are They Disappearing, and How Will That Affect My Life
Times are not what they once were regarding Pensions and Retirement. Once upon a time, an employee would work for an employer and expect to retire with enough money to live out their days comfortably. Unfortunately, this security blanket is no longer a common practice in business today. Companies like Uber are using contracted employees to avoid offering pension plans to their employees. The economy has changed the way in which people retire, but options are available to those who ask the right questions.
What is a Pension?
- Pensions are retirement plans that come in 2 different forms. A Defined Contribution Plan and a Defined Benefit Plans. A Defined Contribution Plan is a pension/retirement plan in which retirement contributions from the employee and/or the employer are invested and the returns on that investment are credited to the individual’s account. A Defined Benefit Plan is a pension/retirement plan in which the employer/sponsor promises to pay the employees/members a specific benefit for life beginning at retirement. This benefit is calculated by age, earnings, and years of service. These are the two things you should think of when someone mentions Pensions.
I work in Florida, do I have a Pension?
- You must speak with your employer to find out if you have a pension program established at your workplace in Florida. It is important to know of such programs before you invest years of your time in any established employee/employer relationship. If the employer is unaware of Pension benefits, inform them of the cost savings of advantages of retaining good employees while saving the cost to hire and train new employees. More than likely, your employer has already heard of Pension programs and has already been talked into providing a 401(k) Retirement Program.
Is a Pension and 401k the same?
- No. They are both retirement programs, but a 401(k) is not equivalent to a Pension program. 401(k)’s were introduced in the early 80’s as a way to compensate high ranking executives in addition to their normal pensions. Eventually, employers shifted from rewarding Pensions to rewarding 401(k) programs. It turns out that 401(k)’s have much higher risks for lower returns, and the funds are individually managed by the company providing the 401(k), adding more risk. These 401(k)’s end up saving employers money compared to a Defined Benefit Plan. This cost savings is what originally would end up in a Pension program.
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Pensions and Retirement are supposed to go hand in hand, but if you do not investigate the Pension plans available from your employer, you can quickly find yourself retiring without any savings. If your company has a human resources person, it is best to speak with them about Pension programs, 401(k), and other retirement benefits. Make sure to take the time to review all available retirement plan options and converse with a qualified attorney if there are any questions regarding retirement.