Taking Stock of Your Retirement Plan

As more companies make a pension switch, you may find that you have lost ground. Here's what you can do to preserve your nest : egg.

When Nicole Johnson-Reece changed jobs 14 months ago, she never realized that the price would be so steep. After eight years at AT&T, she left to take a career-boosting position as Bell Atlantic’s staff director of ethnic marketing. But the elevated status served to depress her retirement funds. Even though the 31-year-old professional has a 401(k) account with her former employer-she intends to transfer the money into an individual retirement account (IRA) later this year-there’s another undisclosed sum that she will never be able to touch. Those dollars were part of AT&T’s traditional pension plan, which means that Johnson-Reece couldn’t get a cent unless she was on the job another 34 years.

As of January 1, 1998, AT&T officially converted their traditional formula into a newfangled cash balance retirement plan. The ironic part: if Johnson-Reece had stayed with the company just one more month, she would have been able to take her money and roll it over into a Bell Atlantic savings account or an IRA. “Unfortunately, I had to lose out on the cash balance option. With a traditional pension, you can’t touch a penny until age 65,” says Johnson-Reece. “With a cash balance plan, the money is there if you need to get to it. The old, traditional pension was created during a time when employees were expected to stay at a company for life. With downsizing and people regularly changing jobs or careers, cash balance plans are more suitable.”

MEETING THE NEW CHALLENGES OF RETIREMENT
Welcome to the brave new world of retirement finance. Like Johnson-Reece, you’re probably trying to build your nest egg while weighing today’s dizzying and daunting options. Major companies are reengineering their pension plans to meet the needs of a younger, transitory workforce and transforming their old-fashioned plans into new portable, money-saving models. Even President Clinton has decided to get into the act. During his State of the Union address, he proposed the establishment of Universal Savings Accounts, or U.S.A.s. The program would use 11% of the projected federal budget surpluses over the next 15 years-approximately $500 billion-to increase Americans’ retirement savings. The widely debated initiative would act as a government-sponsored 401(k), matching trust fund dollars with money workers would save in their own U.S.A. accounts. The objective: help aging baby boomers (particularly low-income families) build a nest egg.

With such developments, no one can afford to be passive in mapping out his or her retirement. You have to plan smarter, start earlier and become more market focused. If not, you run the risk of tarnishing your golden years.

The biggest and most controversial vehicle has been the cash balance program adopted by major corporations, including AT&T, Bell Atlantic, Bell South Corp., Chemical Bank, American Express and Xerox. Under the new format, employers annually contribute a percentage of each employee’s pay to an “asset pool” that accrues interest. This may be tied to the rate of the 30-year Treasury bond or other investment vehicles. In essence, they’re hybrids of the traditional defined benefit model and a defined-contribution

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