A pension or retirement plan is the key to a bright future and carefree lifestyle upon permanently exiting the work force. Monitoring their growth, ensuring they are properly funded and are performing as planned can be a personal obstacle. Many companies do some of the heavy lifting by structuring and creating pension and retirement plans that are guaranteed to exceed expectations and allow workers to decompress from years of meetings, deal closings and cantankerous bosses.
Brief History of Retirement Plans
In 1875 the first employee pension program was started by the American Express Corporation, according to the Employee Benefit Research Institute, at a time when most public companies did not offer this revolutionary incentive (most businesses were mom and pop shops). Over the next 50 years, 421 private-sector pension plans were established by major American institutions, including AT&T, Goodyear and Eastman Kodak. By 1990, nearly 39 million workers were covered by a pension plan and although that number has decreased dramatically over the years, many employers still offer a wide variety of quality retirement plans.
Defined Benefit Plans
The Department of Labor says that defined benefit plans guarantee a specific monthly payment upon retirement. Defined benefit plans make payments to retirees through two different programs. One program pays benefits promised through an exact dollar amount such as $200 per month. The second, and most common, is a plan formula that factors length of service against an employee’s salary. An example would be 1 percent of an annual salary for the last five years with each year of service.
401(k) Retirement Accounts
Another popular retirement plan is the 401(k) which the Department of Labor says is a defined contribution plan. A 401(k) plan is a cash or defined arrangement, meaning an employee defers a percentage or fixed dollar amount of his salary, which is then invested, pre-tax, into the 401(k) account. Some employers match the amount and the law sets a dollar limit on the full-year amount an employee can contribute.
Cash Balance Plans
And lastly, a cash balance plan or defined benefit plan is a program that typically credits a participants account with a “pay credit” in the form of cash. An example would be an employer crediting an employee’s account with 10 percent of his compensation. Participants also receive an “interest credit” that is linked to an index like a treasury bill and the potential risks are averted and absorbed by the employer.
Best Places to Work
Liz Weston, a personal finance columnist for MSN Money, says there are six companies in America with outstanding track records in retirement plans for their employees. Philip Morris is said to have the best benefits in the nation. An employee at the company who retires at age 60 receives pension checks equal to 40 percent of the employee’s final pay. Weston also says pharmaceutical company Schering-Plough is at the top of the list as well as mining company Phelps Dodge (acquired by Freeport-McMoRan in 2007), Chevron, Unocol and Lockheed Martin.