Pension Plan Help

This is a general guide to pension plan help so that you might understand pension plans and how they work under an employer-sponsored Pension Plan.

There are generally two different types of pension plans provided by an employer... the traditional Defined Benefit Plan and the newer 401K type Defined Contribution Plan.

Defined Benefit Plans - DB

Don't get scared -- you are seeking information and I've worked in the Retirement benefit area for 20 years, so let me explain what I know. I am definately no "rocket scientist" but I sincerely hope this might just help you understand your own pension benefit calculation (that is IF you are lucky enough to have a pension)!

Years ago, most employers had DB's, the traditional pension plan, which provided lifetime pensions for their retired workers. However, in recent years, many employers are ridding themselves of the liability associated with these lifetime pensions.

If your employer has a DB, be assured you have a good thing going! It will provide a lifetime income you can't outlive... monthly payments for life and probably survivor options for your spouse too.

Defined Contribution Plans - DC

DC plans are the pension plans of the future -- they can be funded entirely by the employee or funded by both the employee and the employer... the latter is better, of course, as your employer is contributing towards your retirement future which helps your retirement savings account grow.

It's best that the funds are in money market funds with a variety of stocks all managed by financial experts. It's not the best when you get company stocks... its fantastic if the company grows like crazy and you become wealthy -- but remember Enron. Many people faced financial ruin even though they thought their future was secure - because everything they has was Enron stock.. and when Enron went bust, so did their future.

The problem, as I see it, is that your funds can run out. Assuming Social Security payments are paid to you, if you have a DC, you will supplement your income as you go... if you need a higher monthly income, it comes from your retirement savings fun.

You only have so much.. whatever that amount is when you retire. If the stock market takes a hit, so does your retirement funds. If you have a crisis in your life, even temporarily, you use the funds that you had hoped to use later in life (for example, one of your adult children moves back in, or a hurricane takes off your roof). Once used, those funds are long gone... and though you have your funds invested,