A big part of retirement planning is risk control and management. By this I mean identifying and understanding the bad things that can happen to your money, your job, your health, and life in general. Then you must try to build into your plan as much protection against these risks as you can afford. Unfortunately, it seems we must add private pension benefits to the list.
< Western & Southern is a Fortune 500 insurance company and financial services firm based in Cincinnati, with $34 billion in assets. This morning it announced that as of January 1, 2011, it was cutting retiree payments from its defined-benefit retirement plan (a/k/a pension plan) by more than 30%.
Other changes include elimination of a temporary annuity that’s available to employees who retire between the ages of 55 and 62, and a policy that allowed employees to retire with full pension benefits at age 60.
Western & Southern has been studying their plan for 18 months and concluded that it was underfunded. Unlike government pension providers, a private business cannot print money or raise taxes to solve a problem like this.
Western & Southern retirees now can expect their private pension to cover only about 32% of their final salary.
What is the takeaway for us? We cannot assume that all of the retirement benefits promised to us by private business will be there when we retire. That is another loss contingency that needs to be introduced into our planning.
Sad but true.