The Bush administration has proposed new rules that would allow employers to resume converting existing employee pension plans into controversial "cash-balance" pension plans.
In a cash-balance plan, workers build up retirement value evenly over the years (based on salary), rather than, in traditional plans, typically building greater pension value in later years of employment. While cash-balance plans help employees who work short amounts of time at many different employers, in the long run, these new plans can significantly decrease final retirement benefits.
From 1985 to 1999, an estimated 33% of Fortune 100 companies switched to cash-balance pension plans. In 1999, the right to convert to cash-balance plans was halted until the plans could be investigated. Now, within 90 days, conversion by employers could be allowed again.
Why did 33% of Fortune 100 companies switch to these new pension plans in relatively short order? Most say because it saves them money (large firms save as much as $100 million). If the cash-balance pension plan saves employers money, where do the savings come from? You got it. You. The employee.
Many argue cash-balance pension plans represent an "anti-worker movement." Do they? Well, they have been lobbied for by big-business interests since the 1999 freeze. And when money is saved, it has to come from somewhere. If your employer is suddenly saving more money, and it didn't cut nonemployee costs, then it's saving money on your back.
Read more about this, and then bookmark the Fool's retirement area and start learning. Nobody -- nobody -- will help you retire comfortably more than you can help yourself.
