Today’s economy leaves many to question life after retirement with consistently increasing cost of living and inflation on the rise. As early as a few years into the working world, many U.S employees begin generating a plan for after retirement years and assure that they and their loved ones will be secure in the future. Many concerns include health insurance, co-pay coverage, daily living expenses and disability care. In addition, U.S. workers also begin planning to care for loved ones such as children and spouses in the case of death.
Those employees working in state or government employment enjoy the benefits of state pensions included in the hiring package. State employment may include such professions as firefighters, state police and teachers. Even government officials enjoy the benefits of a state retirement package. In many states, other agencies also include state pension programs specifically designated for their profession such as local police, sheriff and secondary education professionals. Full benefit retirement plans offered by the state are available to public employees after a specific amount of time has been vested into a company and employee contributions fund much of the post-employment coverage.
Many professions are not covered under the state pensions such as the areas of business, customer service and hospitality. In addition, entrepreneurs also may find that they are in need of a private pension plan to prepare for the future. Each and every individual employed still needs to generate a plan for post-employment living regardless of whether or not they are employed by the state or perform a public service. Those self-employed may find many options available to begin a pension plan through private companies, primarily banks but employees are often company dependent.
Changes to U.S business combined with economic strain have found many companies of various sizes cutting the pension benefit programs to employees, leaving worker to fend for themselves in the area of securing a future. Though this has been a growing trend across the U.S in both large corporations and small businesses, several companies still offer comprehensive retirement packages to all employees.
What is a Quality Private Pension Package?
Many companies still offer employees the option of a company 401K program though standard pension plans have been cut from the benefits packages. While employees may find that both options can offer a more secure retirement plan that simply relying on social security, there are subtle differences between the two that each employee should understand. In general, the best benefits packages offered by a potential company are those that include a defined benefits package for the most secure retirement possible.
The most obvious difference between a 401K and defined benefits package is the way in which retirement benefits are accumulated. Within a 401K benefits plan, the employer deducts a specified amount pre-tax from the employee’s paycheck to be added to the retirement fund. In some cases, the employer may chose to match employee contributions with a specific amount the company chooses. Private interest accumulates over time on the contributions made until the employee reaches the designated retirement age. With a defined benefit package, employees may either contribute a set percentage of pre-tax payrolls with employers matching the percentage minimum or in some cases the employer simply contributes money to the plan on the employee’s behalf. The amount contributed accumulates interest over time and is tax-deductible while the employee is still in active contribution.
Those using a 401k plan find that if for any reason early retirement is necessary, they will acquire large penalties and fees, regardless of the reasons for early retirement. This means that even in the case of disability retirement, employees may lose up to half of the amount they had accumulated. Defined benefit packages allow for early retirement with smaller fees associated with the monthly distributions and in many cases a specific benefit may be available in the case of disability.
Depending on the specific defined benefit package, other options are available to the employee such as survivor coverage which may include a monthly benefit in the event the employee dies both before and after retirement. Health expense coverage may also be available in these packages. Distribution of defined benefits packages is secure and calculated based on several factors such as employee final yearly wage and years vested. While 401k programs work in a similar manner, the programs will not compensation for COLA or cost of living adjustments critical for retirement planning.
What Companies are still offering Defined benefit packages?
Many companies of various sizes and categories still offer employees a comprehensive defined benefit pension package. When searching for a potential employer, professionals should take into consideration what type of retirement options the companies offer and include this in the decision making process. Employees should investigate a potential company to discover the specifics offered by the employer in advance. Professionals will find many companies offering defined benefit packages. The following ten fortune 100 companies still provide defined benefit pensions to new employees:
- General Electric (GE)
- Exxon Mobil
- Johnson & Johnson
- Proctor & Gamble
- Bank of America
General Electric stated in a recent annual report that its defined benefit pension plan was still 100% company funded and that it has no intentions of making any changes to this plan in the near future. In addition, Exxon Mobil contributes up to $3 billion to its defined benefits plans for employees each year which is an increase from only $53 million reported contributions in 2008.
Regardless of the type of pensions and specific benefits offered, it is essential that each employee begin planning for retirement as soon as the first day of employment. The key to a successful retirement strategy understands what programs are offered by the company and what they will provide after retirement. A defined benefits package will offer the most retirement security and options to an employee and is important to locate a company within the field offering such a package when hunting for a future employer.