In the past, many careers came with a pension to provide for the worker in their old age. The pension was considered to be part of their salary and was paid after the employee had reached a certain age and retired. Today, pensions plans are becoming harder and harder to find as many retirement plans are now funded by the employee, not the employer. If you are lucky enough to have a pension available to you at your job, there are some things that you should know about the plans available.
The Terms Of A Pension Plan Can Change
One thing that many people do not realize is that the terms of a pension plan can change, even after the person has retired. Many companies that offer pension plans have the ability to legally change the terms of the plan to give the pensioners less than what was originally agreed too. There are a number of reasons that this can happen, but none of them really comfort a retiree who has seen their benefits reduced. Some benefit plans change the annuity formula while some others simply reduce benefits across the board. Be sure to read any information that arrives about your pension plan because it may contain explanations about changes that have been made without your knowledge.
The Company May Invest In Risky Investments
Many people do not realize that a company pension plan can invest the plan’s assets in nearly any investment the plan manager chooses. Many Canada pension plans available today invest in investments termed risky, like hedge funds and CDOs. These pension plans are generally chasing larger results to make up for shortfalls in the amount of money available in the plan. By investing in riskier choices, they can earn more money more quickly if the bets go good. Unfortunately, they also lose more when the bets go bad.
Pension Plans May Not Be Able To Cover Everyone’s Benefits
Very few pension plans contain enough funds to cover all of the payments owed to all of the participants. While many are required by law to hold their funding above a certain level, most use the payments from younger employees to pay for the benefits of older employees. If the pension funds end up running out of money, the taxpayers may be on the hook for covering the gap between what is available and what is owed. As expected, many taxpayers are not happy to be placed in this position, especially if they work for a company where pension plans are not offered.
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Not all pension plans are the same! I will receive a pension as a teacher. In many ways it is similar to Social Security because I contribute 8% instead of Social Security and the district does a match. It is well invested by one of the best pensions in the country (CalSTRS).
Aside from insurance plans, we should also be careful with the insurance plans we are having.