1. Frozen pension plan? Now what?
Even frozen pension plans need active management. Once a plan is frozen a whole new set of risks and challenges arise.
2. The Aerospace Corporation: Evolution of a Pension Plan
The Aerospace Corporation: Evolution of a Pension Plan
Aerospace Corp., a government-funded research corporation, has taken the unusual step of reviving its pension plan in an effort to remain competitive in the labor market.
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Time period
Participation
Plan benefit formula
Retirement benefits
Until April 1993
All employees
One-third of benefits
accrue using a traditional defined-benefit plan formula, and two-thirds
of benefits accrue using a variable-benefit formula in which retirement
benefits can vary and participants bear investment risk.
Full retirement benefits at
age 62.
April 1993-January 2005
Employees hired before
April 1993 remain in the original plan.
New hires are enrolled in a defined-contribution plan.
Original plan is unchanged.
Eight percent of pay is contributed to a defined-contribution plan on
employees’ behalf.
Full retirement benefits at
age 62 for employees in the original plan.
Retirement benefits available as governed by federal regulations and tax
law.
Current plan
Employees hired after April
1993 have a choice between participating solely in the
defined-contribution plan or participating in a new plan that provides a
mix of defined-contribution and defined-benefit plan participation.
Original plan remains
unchanged for employees hired before April 1993.
New plan allows employees a choice between:
--Continuing to receive a company contribution to the
defined-contribution plan equal to 8 percent of salary
or --Receiving a company contribution to the defined-contribution plan
equal to 4 percent of salary and a benefit accrual in the
defined-benefit pension plan designed to equal 4 percent of employees’
pay*. The same ratio of fixed and variable benefits used in the original
pension plan applies to the defined-benefit pension plan.
Full retirement benefits at
age 62 for employees in the original plan.
Employees participating solely in the defined-contribution plan can take
retirement benefits at any time subject to federal regulations and tax
law.
Employees hired after April 1993 and participating in the
defined-benefit pension plan can get full retirement benefits from that
plan at age 65.
*Because a portion of the defined-benefit pension plan is accrued using a
variable-benefit formula in which benefits vary based on investment performance
and participants bear investment risk, the 4 percent figure is calculated using
an assumption of "acceptable investment performance," according to company
representatives.
Workforce Management Online, April 2006 -- Register Now!
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