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.

increase our hope chest,” says Johnson-Reece, who’s married and has a two-year-old daughter. “I know when I retire Social Security is barely going to exist or not at all. So, it’s important that my husband and I make plans now to prepare for that time.”

Johnson-Reece and her husband started investing in high-technology stocks to grow their investment portfolio and tapped a planner to help them create a 15- to 20- year financial plan. By following this formula, they can expect to find comfort in their golden years.

These days, American businesses are offering a number of retirement plans.
The chart below provides details on the characteristics of traditional defined-benefit, defined-contribution and cash-balance plans.

Beneficiary Defined-Benefit Plan (Traditional Pension) Defined-Contribution Plan (401k, 403b) Cash-Balance Plan
Structure of Plan Rewards older and longer service employees Significant accruals at younger ages Significant accruals at younger ages
Risk Level Generally, no employee contributions, no individual accounts Employee and/or employer makes contributions to plan to fund all employees No employee contributions; employer makes regular contributions to a fund of assets for benefits accrued by individual employees
Benefits Employer bears investment risk Employee bears investment risk Employer bears investment risk
Benefits are based on formula tied to years of service and salary Benefits payments based on money accumulated in each individual’s account Benefits are defined in terms of current lump-sum equal to “account” balance
Benefits defined as life annuity Employee selects a menu of investments, usually mutual funds Accounts credited with interest tied to 30-year Treasury
Usual form of benefit is monthly income Usual form of benefits is lump-sum payment Form of benefit payment is a lump sum or annuity
Portability Usually not portable Portable Portable
Insurance Pension Guaranty Corp. cost and insurance No Pension Guaranty cost and insurance Pension Guaranty Corp. cost and insurance
Vesting Schedule Plan can require certain number of years service before vesting occurs Emplo
yee contributions are immediately vested; vesting in employer contributions
Plan can require certain number of years service before vesting occurs
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