Aug. 17, 2006 - 12:46 MDT

ALMOST UNDERSTOOD

Regarding my last night's entry, here is an e-mail of explanation I received today. I got permission to use it if I don't identify the person who sent it. Herewith, whithout naming the sender, in full:

Just new words for the old grind I guess.

"Doug,

The old-fashioned pension plan defined what you would receive as a pension (some plans promised a specific amount and some promised a certain percentage of salary). Many companies over the years have failed to contribute sufficient funds to support these plans (such as the airlines).

The cash balance plans instead define how much money the company will contribute each year. In many cases they are doing this by contributing to 401k plans.

If I were a new employee, I would want to have a cash balance plan that went into a 401k -- that way I would not have to stay in that job for some number of years before I was vested in the plan and also it would be completely portable. I could leave that company without giving up my future pension.

IBM used to have a very good pension plan. About a dozen years ago they changed it (and they just finally won a lawsuit about it) from a defined benefit plan to a defined contribution plan. The lawsuit was over the fact that younger workers came out ahead of older workers under the new plan -- that was intended as an incentive for new hires to want to stay with the company.

Now they had changed it again -- they have frozen the existing plan (i.e., the money they have contributed to my pension will still be there when I retire but they will not be contributing any additional money to it) and for new workers there will not be any company pension plan. Instead, they are going to contribute to a 401k plan for employees. They have always contributed matching funds -- fifty cents for every dollar the employee put in, up to four percent of salary. This new plan is that instead of a pension, they will put five percent of salary into each employee's 401k plan in addition to the matching money.

If I were 23, I would love the new pension plan because it would mean my pension would be totally portable.

If I were 53 I would be convinced that they were trying to screw me.

Since I'm 63, I really don't care. I'm probably going to retire from IBM in five or six years (assuming they don't ship my job to India before then) and it all seems to work out even for me.

Of course the real pension scam is with public employee union pensions -- most cities and towns and school districts are under-funded -- and many are drastically under-funded -- if they were private companies they would be in serious legal trouble. The towns have been granting highway dept and police and fire and teachers pension plan increases, but like the airlines, they have not been putting anywhere near enough money into the plans to meet the obligations. The net result a few years down the road could be hugetax increases.

Regards,"

+++++++++++++++++++++++++++++++++++++

Comes a bit closer to giving me something to understand, it does. I thank the person that sent me the e-mail. Still wading in the bulrushes, but the information was ALMOST UNDERSTOOD . . . . . . . . . . .

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