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Retirement Rights


Guest dragonden

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Guest dragonden

Three years ago I was told by a company that I was no longer needed afer nearly 26 years of hard work. One of the things I found out (after investigating my retirement benefits) is that my retirement benefit is reduced a certain percentage for every year between now and retirement age. So needless to say after 26 years of building up a benefits it is now reducded to less than 40% of what I anticipated.Since I was 47 at the time of separation the 18 years to retirement reduced my benefit.I am really trying to find out if this is legal or not? Do I have any recourse in the situation? Any suggestions from anyone who has been in this type of situation? Help please.

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The retirement plan you are describing is a defined benefit plan. Most defined benefit plans calculate benefits under the assumption that you will work for the employer and continue to accrue benefits until the normal Retirement Age as defined in the plan. If you do not work until that retirement age, the actual benefit you receive will be actuarially reduced (discounted for interest and service) for those non-accruing years. Your anticipation was based on the benefits the plan would give you at a much older age, not at 47.

It is legal and, because of the funding rules that apply to these plans, a reduction like this is legally required for the plan to be an IRS Qualified Plan.

The recourse you have is to request a copy of the plan document which explains the funding formula and the pre-retirement reduction, and an explanation of your benefit calculation. Compare the two, (ask an actuary to help) and make sure they at least SEEM to make sense.

Good Luck.

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Your situation is and always has been a major defect of DB plans. Your DB, based on your salary at the time of termination, will be eroded by inflation over the next 18 years, until you are entitled to receive your pension at age 65. This is called "cold storage vesting". Let's use just a 3% inflation rate. Over the next 18 years (the cold storage vesting period) you can expect your pension's purchasing power to be reduced by 54%. Let's assume a vested benefit of $20,000 in 1999. It will have purchasing power in year 2017 of $9200.00 (20,000 x .46)

YOUR SITUATION REVEALS ANOTHER REASON WHY DEFINED CONTRIBUTION PLANS ARE SO POPULAR!!!

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[This message has been edited by jlf (edited 07-02-99).]

[This message has been edited by jlf (edited 07-07-99).]

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I'm not really well versed in DB plans, but can he investigate the possibility of a lump-sum payment with an eye toward self-directed investment?

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