What If My Pension Becomes Frozen?

Pensions were once the Holy Grail of secure retirement plans, but they have become far less reliable over time. Sadly, in order to maintain the pension, participating employees had to give up pay raises for many years, in many cases. That’s money that will never be recouped. In an announcement today, General Electric (GE) became the most recent major U.S. company to pull the plug on its pension plan. It says it is freezing pensions for 20,000 employees with salaried benefits and supplementary pension benefits on another 700. When a pension is frozen, it is still federally insured and employees will receive whatever amount had already accrued to that point, but it is no longer earning benefits. In addition, workers must now scramble to create and implement a new retirement plan. Retirees currently receiving benefits will not be affected and no new hires have become part of the plan since 2012.

A large number of private companies have moved away from defined benefit pension plans since the 1980’s, particularly following the introduction of 401(k) plans, which still limit investment options, but put the responsibility for saving squarely on the employee’s shoulders. In an effort to ‘assist’ employees in their transition, GE will contribute 3% of an employee’s annual salary to a 401(k) plan and provide a 50% matching contribution for up to 8% of the employee’s contributions. For a limited time, GE is offering a lump-sum payment plan to 100,000 former employees, who have yet to start receiving benefits.

GE and other employees facing worker pension freezes should examine their benefits, determine current value, and identify how much they need to add between now and retirement, in order to achieve their planned retirement goals. Workers should also take into account; other IRA accounts, social security benefits, stock portfolio, savings, and the same for the spouse, if applicable. Based on individual needs, workers can consider the advantages of diversifying rolled funds into options like; a new company 401(k) (if available), traditional IRA, Gold IRA, Health savings account, and more. This process is probably going to come as a shock to most, because there is typically no preparation provided to such an announcement and covered workers typically were counting on such pensions to survive retirement. But there is certainly no shortage of underwater pension plans in America today. So it behooves anyone in such a plan to consider a contingency. GE, a Blue Chip darling for decades, now finds itself with an $8 billion pension deficit.

Once unshackled from a company pension plan, workers should consider all available investment options and diversify accordingly. 401(k) accounts typically provide a very limited universe of investment options, while Traditional IRA’s offer a greater universe of investment options. A Roth IRA requires taxes to be paid up front when the account is created. Nevertheless, a Roth offers unlimited growth with no further tax liability. A Gold IRA allows investors to hold physical precious metals in their IRA account and American Bullion was a pioneer in the industry. Explore your options and expand your horizons. Make sure to consider physical precious metals in your retirement diversification plans.

Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.